chapter thirteen International Competitive Strategy Mc GrawHillIrwin International

chapter thirteen International Competitive Strategy Mc. Graw-Hill/Irwin International Business, 11/e Copyright © 2008 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Learning Objectives § Explain international strategy and competencies and international competitive advantage § Describe the steps in the global strategic planning process § Explain the purpose of mission statements, objectives, goals, and strategies 3

Learning Objectives § Describe the methods of and new directions in strategic planning § Explain home replication, multidomestic, regional, global, and transnational strategies and when to use them § Describe the sources of competitive information § Understand the importance of industrial espionage 4

International Strategy • The way firms make choices about acquiring and using scarce resources in order to achieve their international objectives • Involves decisions that deal with all the various functions, products and regional unit activities of a company 5

International Strategy • The goal is to achieve and maintain a unique and valuable position both within a nation and globally: competitive advantage • Competitive advantage is the ability of a company to have higher rates of profits than its competitors 6

Competitive Advantage • To create a sustainable competitive advantage, a company tries to develop skills that – Create value for customers – Are rare – Are difficult to imitate or substitute for – Are organized in a way that the company can fully exploit 7

Global Strategic Planning • Provides a means for top management to – Identify opportunities and threats – Formulate strategies to handle them – Stipulate how to finance and manage the strategies’ implementation • Provides consistency of action • Provides a thorough, systematic foundation for making decisions 8

Global Strategic Planning Process The process of strategic planning provides a formal structure in which managers • Analyze the company’s external environments • Analyze the company’s internal environment • Quantify goals • Define the company’s business and mission • Set corporate objectives • Formulate strategies • Make tactical plans 9

Global Planning Process 10

Analyze Corporate Controllable Variables • Situational analysis – Forecast – Value Chain Analysis • Who are the target customers? • What value do we deliver? • How will customer value be created? – Figure 13. 2 11

Figure 13. 2 – The Value Chain 12

Analyze Corporate Controllable Variables • Knowledge as a Controllable Corporate Resource – Capabilities of employees – Structures, systems, organizational routines • Build knowledge database and transfer best practices • Protect knowledge from competitors 13

Define the Corporate Business, Vision, and Mission Statements • These broad statements communicate to the corporation’s stakeholders what the company is and where it is going and the values that will guide the behavior of the organization’s members – Mission statement • A broad statement that defines the organization’s purpose and scope 14

Define the Corporate Business, Vision, and Mission Statements – Vision Statement • Description of the company’s desired future position if it can acquire the necessary competencies and successfully implement its strategy – Values Statement • Clear and concise description of the fundamental values, beliefs, and priorities of the organization’s members 15

Set Corporate Objectives • Objectives – Direct the firm’s course of action – Maintain it within the boundaries of the mission – Ensure its continuing existence • In order to implement an effective strategy, it is important to quantify objectives 16

Formulate Competitive Strategies • Competitive Strategies – Action plans to enable organizations to reach their objectives – Generally, participants in the strategic planning process will formulate alternative competitive strategies along with action plans that seem plausible 17

Formulate Competitive Strategies • In the international market companies confront two opposing forces – Reduction of costs – Adaptation to local markets • Basic strategies address these pressures – – – Home Replication Multidomestic Regional Global Transnational 18

Cost and Adaptation Pressures and Their Implications for International Strategies 19

Home Replication Strategy • Used when companies typically centralize product development functions in their home country – Then transferred to foreign markets in order to capture additional value – Microsoft, Mc. Donald’s 20

Multidomestic Strategy • 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 – Schneider Electric 21

Global Strategy • Used when a company faces strong pressure to reduce costs and limited pressure to adapt products for local markets – – 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 to meet customer needs and higher transportation costs – Intel, Boeing 22

Transnational Strategy • Used when a company confronts pressures for both cost effectiveness and local adaptation – Company locations based on where most beneficial for each activity • Upstream value chain activities will be more centralized • Downstream activities will be more decentralized – Achieving an optimal balance is challenging – Strategic decisions, structures and systems will be complex 23

Scenarios • Multiple, plausible stories about the future – Often the “what if” questions reveal weaknesses in present strategies – Types of subjects for scenarios include • large and sudden changes in sales (up or down) • sudden increases in price of raw materials • sudden tax increases • a change in the political party in power 24

Types of Plans • Contingency Plans – Plans for the best-or-worst-case scenarios or for critical events that could have a severe impact on the firm • Tactical Plans (Operational) – Spell out in detail how objectives will be reached – Short-term 25

Strategic Plan Features • Sales Forecast and Budget – Sales Forecast • Provides management with an estimate of the revenue to be received and the units to be sold – Budget • During planning, budgets coordinate the functions within the firm and provide management with a detailed statement of future operating results 26

Plan Implementation Facilitators • Policies and Procedures • Policies – Broad guidelines to assist lower-level managers in handling recurring problems – Permit discretionary action and interpretation – The object is to economize managerial time and promote consistency among the various operating units 27

Plan Implementation Facilitators • Procedures – Prescribe how certain activities will be carried out – Ensure uniform action on the part of all corporate members – Facilitate comparison among operational units 28

Performance Measures • Assess if the strategy and its implementation are proceeding successfully and what modifications may be needed – Measures of the company’s success • Financial, technological, and human resources – Measures of the effectiveness – Measures of the company’s progress 29

Kinds of Strategic Plans • Time Horizon – Strategic plans may be classified as short, medium, or long term • Level in the Organization – Each organizational level will have its level of plan • Functional area 30

Methods of Planning • Top-down planning – Begins at the highest level in the organization and continues downward • definition of the business • mission statement • company objectives • financial assumptions • content of the plan • special issues 31

Methods of Planning • Bottom-Up Planning – Begins at the lowest level in the organization and continues upward • Iterative Planning – Repetition of the bottom-up or top-down planning process until all differences are reconciled 32

New Directions in Planning • Who Does the Planning? – Many firms have introduced innovation to the planning process • Bring in customers and suppliers who have firsthand experience with the firm’s markets 33

New Directions in Planning • How Planning is Done – Many firms have moved toward less structured formats and much shorter documents • Contents of the Plan – Top managers much more concerned with issues, strategies, and implementation 34

Summary Changes in the International Planning Process • Top management must assume more explicit strategic decision-making role, decide how things ought to be, not listen to analyses of how they are • The nature of planning must change from forecasting to creativity • Planning processes and tools that assume a future much like the past must be replaced by a mind-set obsessed with recognizing change and using it to build competitive advantage 35

Summary of Changes in International Planning Process • The planner must change from purveyor of incrementalism to crusader for action • Strategic planning must be restored to core of line management responsibilities 36

Competitor Analysis • Competitor Analysis – Process in which principal competitors are identified and their objectives, strengths, weaknesses, and product lines are assessed • Industrial Espionage – Act of spying on a competitors to learn secrets about strategy and operations 37

Competitor Intelligence Systems • Procedure for gathering, analyzing, and disseminating information about competitors • Benefits include ability to: – – Improve bidding success Identify competitor’s key customers Identify plant or other facility expansion plans Improve understanding of competitors’ products and processes 38

Sources of Information • Within the Firm – Sales representatives – Librarians – Technical and R&D people • Suppliers/Customers • Published Material – Technical journals – Databases – Internet – Industry reports – Public documents • Direct Observation or Analysis of Physical Evidence – Technical people – Reverse engineering • Competitors’ Employees 39

Benchmarking • A technique for measuring a firm’s performance against the performance of others 40

Benchmarking • Four types – 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 – Generic: comparing operations in totally unrelated industries 41