1

PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

Chapter

Strategy Formulation and Implementation

The specific objectives of this chapter are:
1.

IDENTIFY the basic steps in strategic planning, including environmental scanning, internal resource analysis of the MNCs strengths and weaknesses, and goal formulation. DESCRIBE how an MNC implements the strategic plan, such as how it chooses a site for overseas operations. REVIEW the three major functions of marketing, production, and finance that are used in implementing a strategic plan.

2. 3.

Chapter

Strategy Formulation and Implementation

The specific objectives of this chapter are:
4. 5.

DESCRIBE how an MNC implements the strategic plan, such as how it chooses a site for overseas operations. REVIEW the three major functions of marketing, production, and finance that are used in implementing a strategic plan. EXPLAIN specialized strategies appropriate for emerging markets and international new ventures.

6.

Strategic Management
Strategic management

Process of determining an organizations basic mission and long-term objectives, and then implementing a plan of action for pursuing this mission and attaining these objectives Increasingly diversified operations in a continuously changing international environment.

Growing need for strategic management is related to

Approaches to Strategic Planning

Economic Imperative

Administrativ e Coordination

Political Imperative

Quality Imperative

Approaches to Strategic Planning

Economic imperative focused MNCs

employ a worldwide strategy based on cost leadership, differentiation, and segmentation They often sell products for which a large portion of value is added in the upstream activities of the industrys value chain Research and development Manufacturing Distribution Strategy also used when the product is regarded as a generic good and therefore does not have to be sold based on name brand or support service

Economic Imperative

Approaches to Strategic Planning

MNCs using the political imperative

approach to strategic planning are countryresponsive; their approach is designed to protect local market niches Success of the product or service depends heavily on

Political Imperative

Marketing Sales

Service

These MNCs often use a country-centered or

multidomestic strategy.

Approaches to Strategic Planning

Two paths of quality imperative

Quality Imperative

Change in attitudes and a raising of expectation for service quality Implementation of management practices designed to make quality improvement an ongoing process

Total quality management, (TQM)

Cross-training personnel to do the jobs of all members in their work group Process re-engineering designed to help identify and eliminate redundant tasks and wasteful effort Reward systems designed to reinforce quality performance

Total Quality Management

Quality is operationalized by meeting or exceeding

customer expectations The quality strategy is formulated at the top management level and is diffused throughout the organization

Deliver quality products or services to internal and external customers. Traditional inspection and statistical quality control Cutting-edge human resource management techniques, such as self-managing teams and empowerment

TQM techniques

10

Approaches to Strategic Planning

Administrative coordination approach

MNC makes strategic decisions based on merits of the individual situation rather than using a predetermined economic or political strategy

Administrativ e Coordination

Least common approach to formulation and implementation of strategy because of the firms desire to coordinate its strategy both regionally and globally

11

Approaches to Strategic Planning

Globalization Production and distribution of products and services of a homogeneous type and quality on a worldwide basis Many customers of MNCs have homogenized tastes, which helps spread international consumerism National responsiveness Understand different consumer tastes in segmented regional markets Respond to different national standards and regulations imposed by autonomous governments and agencies Adapt tools and techniques for managing the local workforce

12

Global Integration vs. National Responsiveness

National responsiveness
Low High

Global integration

High

Global strategy

Transnational strategy

Low

International strategy

Multi-domestic strategy

Adapted from Figure 81: Global Integration vs. National Responsiveness

13

Summary of Approaches to Strategic Planning

The appropriateness of each strategy depends on pressures for cost

reduction and local responsiveness in each country served A global strategy is a low-cost strategy which attempts to benefit from scale economies in production, distribution, and marketing A transnational strategy should be pursued when there are high cost pressures and high demands for local responsiveness Pressures for cost reduction and local responsiveness put contradictory demands on a company because localized product offerings increase cost Organizations that can find appropriate synergies in global corporate functions can leverage a transnational strategy effectively

14

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

Adapted from Figure 82: Basic Elements of Strategic Planning for International Management

15

Elements of Strategic Planning for International Management

Environmental scanning
External Environmental Scanning for MNC Opportunities and Threats

Provide management with accurate forecasts of trends that relate

to external changes in geographic areas where the firm is currently doing business or considering setting up operations These changes relate to the economy, competition, political stability, technology, and demographic consumer data

16

Elements of Strategic Planning for International Management

Internal Resource Analysis
Internal Resource Analysis of MNC Strengths and Weaknesses

Evaluate the MNCs current managerial, technical, material, and

financial strengths and weaknesses Assessment then is used to determine its ability to take advantage of international market opportunities Match external opportunities (gained through the environmental scan) with internal capabilities (gained through the internal resource analysis Key factors for success The key question for the MNC is: Do we have the people and resources that can help us to develop and sustain the necessary KFSs, or can we acquire them?

17

Elements of Strategic Planning for International Management

Strategic Planning Goals
Strategic Planning Goals

Goal formulation often precedes the first two steps of

environmental scanning and internal resource analysis However, more specific goals for the strategic plan come out of external scanning and internal analysis These goals typically serve as an umbrella beneath which the subsidiaries and other international groups operate Profitability and marketing goals almost always dominate the strategic plans of todays MNCs Once the strategic goals are set, the MNC will develop specific operational goals and controls for the subsidiary or affiliate level

18

Formulation of MNC Goals

Adapted from Table 81: Areas for Formulation of MNC Goals

19

Formulation of MNC Goals

Adapted from Table 81: Areas for Formulation of MNC Goals

20

Elements of Strategic Planning for International Management

Implementation
IMPLEMENTATION

Provides goods and services in accord with a plan of action Often, this plan will have an overall philosophy or series of

guidelines that direct the process Considerations in selecting a country Advanced industrialized countries because they offer the largest markets for goods and services Amount of government control. Restrictions on foreign investment. Specific benefits offered by host countries

21

Elements of Strategic Planning for International Management

Implementation
Local issues Once the country has been decided, the firm must choose the
IMPLEMENTATION

specific locale Important factors influencing this choice include Access to markets Proximity to competitors Availability of transportation and electric power Desirability of the location for employees coming in from the outside

22

Elements of Strategic Planning for International Management

Implementation
Production When exporting goods to a foreign market, the production
IMPLEMENTATION

process traditionally has been handled through domestic operations. More recently MNCs have found that whether they are exporting or producing the goods locally in the host country, consideration of worldwide production is important. A recent trend has been away from multi-domestic approach and toward global coordination of operations

23

Elements of Strategic Planning for International Management

Implementation
Finance Transferring funds from one place in the world to another, or
IMPLEMENTATION

borrowing funds in the international money markets, often is less expensive than relying on local sources Issues include Re-evaluation of currencies Privatization Strategies for the base of the pyramid International New Ventures and Born-Global Firms

24

Elements of Strategic Planning for International Management

Implementation
Strategies for the base of the pyramid (BOP) Emerging market customers People at the bottom of the economic pyramid (4 billion) Marketing at BOP forces consideration of smaller-scale
IMPLEMENTATION

strategies Building relationships with local governments, small entrepreneurs, and nonprofits Less dependence on established partners such as central governments and large local companies International New Ventures and Born-Global Firms

25

Elements of Strategic Planning for International Management

Implementation
IMPLEMENTATION

International New Ventures and Born-Global Firms firms that engage in significant international activity a short

time after being established Successful born-global firms leverage a distinctive mix of orientations and strategies Global technological competence Unique-products development Quality focus Leveraging of foreign distributor competences