GBM Internationalstrategicmanagement

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Global Business Management
Importance of this
course
“A student pursuing management education from IILM-
Graduate School of Management, for example may find
himself or herself placed in a firm located in a totally
different country. Knowledge about international business
keeps the youngster mentally prepared to accept assignment
in an alien environment. Forewarning is definitely
forearming, for the fresh management graduate”.
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Global Business Management
Course: Global Business
Management
1. Globalization
2. Global Trade & Theory
3. Global Technological Environment
4. Global Economic Environment
5. Global Political-Legal Environment
6. Foreign Direct Investments
7. Regional Economic Integration
8. Strategy and Structure of International Business
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International Strategic Management
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Global Business Management International Strategic Management
Conten
• ts
Nature of International Strategic Management Opening
• Case: Ford Motor in Thailand, Nestle Global Strategies in
• Increased Profitability for Multinational
▪ Acquiring and or Developing Brands
▪ Reaping Experience Curve Benefits
▪ Realizing Location Economies
▪ Skills and Core Competencies
• Strategic choices for Global Expansion
▪ Multi domestic strategy
▪ International strategy
▪ Global strategy
▪ Transnational strategy
07/06/10 5
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Strategic
Management
Defined:
Set of managerial decisions and actions

that determines the long-run performance
of a firm.
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Basic Model of
Strategic Management
Four Basic Elements
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Strategic Management Model
Environmental
Strategy Strategy Evaluation
Scanning Formulation Implementation and Control
External Mission
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Environment Strategies
accomplish
Industry Analysis
by when Plan to
achieve the
Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure Chain decision Process to
of Command making Activities monitor
needed to performan
Culture Beliefs, Budgets ce
accomplish
Expectations, a plan and take
Cost of the
Values corrective
programs
Procedures action
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance
Feedback/Learning
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Nature of International Strategic

Management
• In concept, SM process in an MNC is similar to that in
any other form of organization.
• The main complicating factors being the numerous country

and regional environments it has to analyze and understand
before considering various strategic options.
• Strategy implementation can be more difficult because

different cultures have different norms, values and work
ethics.
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Management
Tata Steel (Group of Tata) succeed in acquiring
another that is four times as large. The Tata
Group (from Tea to Truck Conglomerate, most
widely admired business group in India) spent 3
billion dollars on 19 acquisitions in five
continents, from the Eight O’ Clock Coffee Co. in
US to Daewoo in South Korea.
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Management
• Ford Motor, which has re-entered the market in Thailand and
despite a shrinking demand for automobiles, there is
beginning to build a strong sales force to garner market share.
The firm’s strategic plan is based on offering the right
combination of price and financing to a carefully
identified market segment.
In particular, Ford is working to bring down the monthly
• payments so that customers can afford a new vehicle.
This is the same approach that Ford used in Mexico, where
the currency crisis of 1994 resulted in serious problems
for many multinationals.
07/06/10 IILM-GSM 11

Management
Toyota is another MNC which has benefited
vastly from strategic management. The
company is going beyond the automotive
market.
In the process, Toyota is assessing

environmental opportunities and threats
and examining its internal strengths
and weaknesses so that the firm’s
strategic
thrust can exploit its strengths and sidestep
any shortcomings.
07/06/10 IILM-GSM 12
Strategies to Increase
Profitability in IB
An MNC is able to increase its profitability in ways often not
available to a domestic firm. For example a global firm able to:
1. Acquiring and or Developing Brands
2. Reaping Experience Curve Benefits
3. Realizing Location Economies
4. Skills and Core Competencies
07/06/10 IILM-GSM 13
Profitability in IB
“ Nestle is the best example to be mentioned. Nestle is the

world’s largest food company, employed over 384,000
people in 2009, 97% of whom worked outside Switzerland.
In 2009, Nestle operated 880 factories in 156 countries.
One half of its sales were in Europe, and 25% came from
North America”.
07/06/10 IILM-GSM 14
Profitability in IB
Nestle has been highly successful in its global operations. It has
adopted several strategies to achieve the success.
1. Strategy of acquiring and/or developing widely known

brands.
2. Another important strategy is to continuously improve traditional
products. For instance, Nestle produces over 200 types of
instant coffee, all tailored to meet the requirements of
specific countries.
3. The final strategy is that the company has given local
managers substantial autonomy.
4. However, basic strategy, brand policy, and financial decisions are
controlled at company headquarters in Vevey, Switzerland.
07/06/10 IILM-GSM 15
Profitability in IB
•• The experience curve refers to the systematic

reductions in production costs over the life of
•
a product. The experience curve has greater
strategic relevance.
•• The firm that moves down the experience
•
curve most rapidly has a cost advantage
over its competitors.
• Serving the global market from a single
07/06/10 IILM-GSM 16
Profitability in IB
‘One firm that has exploited the strategy of experience curve to

its advantage is Matsushita, a Japanese company. Along with
Sony & Philips, Matsushita was in a race to develop a
commercially viable videocassette recorder in the 1970s.
Although Matsushita initially lagged behind Philips and Sony,
it got its VHS format accepted as the world standard and
reaped enormous experience- curved based cost
economies’.
07/06/10 IILM-GSM 17
Profitability in IB
‘Matsushita’s strategy was to build global volume as rapidly as

possible. To ensure that it could accommodate worldwide
demand, the firm increased its production capacity 33-fold
from 205,000 units in 1977, to 6.8 million units by 1984. By
serving world market from a single location in Japan,
Matsushita realized considerable experience curve
advantages’.
07/06/10 IILM-GSM 18
Profitability in IB
• Because of differences in factor costs, certain countries have a

comparative advantage in the production of certain products. For
example,
• Japan excels in the production of automobiles and consumer

electronics.
• The US excels in the production of pharmaceuticals,
biotechnology and financial services.
• Switzerland excels in the production of precision instruments and
pharmaceuticals.
• India excels in the production of computer software.
07/06/10 IILM-GSM 19
Profitability in IB
What does all these mean?
• A firm does benefit by basing each of its value creation

activities at that location where PEST factors are most
conductive to the performance of that activity.
Firms that pursue such a strategy are said to be

realizing location economies.
07/06/10 IILM-GSM 20
Profitability in IB
General Motors (GM) did precisely the same thing.

Design of its Pontiac Le Mans car was done in
Germany, key components were manufactured
in Japan, Taiwan and Singapore; assembly was
performed in South Korea; and advertising
strategy was formulated in Great Britain. Each of
these countries was best suited to perform a
particular value creation activity.
07/06/10 IILM-GSM 21
Profitability in IB
The term core competence refers to skills within the firm that
competitors can not easily imitate. The skills may exist in
production, finance, R&D or marketing.
• Toyota has, in the production of cars.

• McDonalds’s has, in managing fast food operations.
• P&G has, in developing and marketing consumer
products.
• Wal-Mart, in information system and logistics.
07/06/10 IILM-GSM 22
Profitability in IB
An MNC is able to increase its profitability in ways often not
available to a domestic firm. For example a global firm able to:
07/06/10 IILM-GSM 23
Strategic choices for

Global Expansion
07/06/10 IILM-GSM 24
Pressures for Cost

Reductions
• Intense in industries of standardized, commodity
type product that serve universal needs
• Major competitors are based in low-cost locations
• Consumers are powerful and face low switching
costs
• Liberalization of world trade and investment
environment
• Examples
– Bulk chemicals, petroleum, steel, personal
computers
07/06/10 IILM-GSM 25
Pressures for Local

Responsiveness
• Differences in consumer tastes & preferences
– North American families like pickup trucks while in Europe it
is viewed as a utility vehicle for firms
• Differences in infrastructure & traditional practices
– Consumer electrical system in North America is based on 110
volts; in Europe on 240 volts
• Differences in distribution channels
– Germany has few retailers dominating the food market,
while in Italy it is fragmented
• Host-Government demands
– Health care system differences between countries require
pharmaceutical firms to change operating procedures
07/06/10 IILM-GSM 26
Management Focus – Tailoring
world cars to the U.S.

• marketcustomize car
Japanese automobile manufacturers
design to tastes of American consumers
– Toyota released the Tundra with V8 engines which looks like
a heavy-duty pickup truck with a powerful engine
– Nissan let U.S. engineers and planners be completely
responsible for development of most vehicles sold in North
America
– Honda customizes the Pilot, it’s next generation SUV
according to tastes for American families who wanted
bigger vehicles with three row seating
07/06/10 IILM-GSM 27
Strategic choices for Global

Expansion
Four basic strategies to enter and compete in the
international environment:
1. Multi domestic strategy

2. International strategy
3. Global strategy
4. Transnational strategy
07/06/10 IILM-GSM 28
Strategic choices for Global Expansion

Pressure for Global Integration
High
Multi-domestic Transnational
Strategy Strategy
International Global
Strategy Strategy
Low
o er usser
Low High
07/06/10 IILM-GSM 29
P
Strategic choices for Global

Multi-domestic Strategy
Expansion
• Main aim is maximum local responsiveness.
• A firm pursuing a multi-domestic strategy customizes its
products to suit the needs of customers in each country in
which is operates. The company transfers to its subsidiaries the
core competencies it has developed at home and establishes a
wholly owned subsidiary.
• Strategic control is decentralized to each foreign subsidiary
which operates automatically and develops its own set of value
creation activities.
• Multi-domestic strategy seek to take advantage of local
differentiation.
07/06/10 IILM-GSM 30
Strategies for Global

Expansion
• But the problem with this strategy is that each subsidiary becomes
and stand-alone company. Because the resources and skills are
transferred from the parent company, the benefit of global learning
is lost.
• The potential benefits from multi-domestic strategy need to be
stated. The strategy can result in the establishment of a series of
successful foreign subsidiaries.
• Firms pursuing multi-domestic strategy tend to adopt
worldwide area structure.
• H.J. Heinz, Ford and GM, Philips pursued multi-domestic
strategies when they first entered European Markets.
07/06/10 IILM-GSM 31

Expansion
• Product customized for each market Decentralized
• control - local decision making
• Effective when large differences exist between
countries
• Advantages:
– product differentiation
– local responsiveness
– minimized political risk
– minimized exchange
rate risk
07/06/10 IILM-GSM 32

Multi-domestic Strategy Expansion
• Philips is a good example, followed a multi-domestic strategy.
• This strategy resulted in:
– Innovation from local R&D

– Entrepreneurial spirit
– Products tailored to individual countries
– High quality due to backward integration
Multi-domestic strategy presented Philips with many challenges:
– High costs due to tailored products and duplication across

countries
– The innovation from the local R&D groups resulted in products that
were R&D driven instead of market driven.
– Decentralized control meant that national buy-in was required
before introducing a product 33
07/06/10
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International Strategy
Expansion
• International strategy replicates certain features of the multi- domestic
approach.
• As with multi-domestic strategy, the firm transfers its core competences to
the foreign subsidiary so that it can reap the differentiation advantage.
• But certain core competencies in R&D, marketing and

product development are centralized at home.
• All other operating decisions are decentralized (like multi-domestic
strategy). The need for coordination is moderate.
• Limit customization of product offering and market strategy.
• Coco-Cola, Pepsi-Cola, pursue and international strategy.
• These firms follow worldwide product division structure.
• There is limited local responsiveness.
07/06/10 IILM-GSM 34

Global Strategy
Expansion
• With a global strategy, a standardized product
manufactured
is at a few low-cost location and then offered to the
global market.
• As with international strategy, only limited customizing to suit the
tastes of individual markets is allowed.
• Product standardization allows a firm to achieve huge global
economies of scale which translates to lower costs and lower
prices.
• When low price is accompanied by quality, the firm has a very
strong competitive advantage.
• AT&T is a typical company which pursues global strategy.
• Firms pursuing global strategy operates with a
worldwide product division structure.
07/06/10 IILM-GSM 35

Global Strategy
Expansion
• Product is the same in all countries.
• Centralized control - little decision-making
authority on the local level
• Effective when differences between countries are
small
• Advantages:
– Cost
– Coordinated activities
– Faster product development
Semiconductor industries often adopt Global Strategy.

07/06/10 IILM-GSM 36

Global Strategy
Expansion
• Matsushita is a good example that followed a global strategy.
• This strategy resulted in:
– Strong global distribution network
– Company-wide mission statement that was followed closely
– Financial control
– More applied R&D
– Ability to get to market quickly and force standards since
individual country buy-in was not necessary.
The global strategy presented Matsushita with the following

challenges:
– Problem of strong yen

– Too much dependency on one product - the VCR
– Loss of non-Asian employees because of glass ceilings
Matsushita Electric Industrial, now Panasonic Corporation, a multinational electronics corporation based in Kad 3om7a, Japan
07/06/10
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Transnational Strategy
Expansion
• Firms pursuing transnational strategy yield to both the
pressures – global integration and local responsiveness.
•• The need for global integration creates
pressures for centralizing some operating
•
decisions (particularly production and R&D).
• At the same time, the need to be locally
responsive creates pressures for
•
decentralizing other operating decisions to
subsidiaries (particularly marketing).
•• Consequently, these companies tend to mix
relatively high degrees of centralization
for some operating decisions with
relatively high degree of decentralization
07/06/10 38
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Transnational Strategy
Expansion
• P&G is one example of an MNC which is pursuing the
transnational strategy.
• Starting with multi-domestic strategy in 1980s, by 1990s
the largest soaps and detergents manufacturer switched to
transnational strategy.
• P&G now co-ordinates its skills and resources to reduce cost
across countries and increase its differentiation advantage
inside each country as well. The new strategy gives P&G a
competitive advantage over its arch rival, Unilever.
07/06/10 39
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1

Global Business Management

Set of managerial decisions and actions

Four Basic Elements

Strategic Management Model

Nature of International Strategic

• The main complicating factors being the numerous country

• Strategy implementation can be more difficult because

Nature of International Strategic

Nature of International Strategic

Nature of International Strategic

In the process, Toyota is assessing

“ Nestle is the best example to be mentioned. Nestle is the

1. Strategy of acquiring and/or developing widely known

•• The experience curve refers to the systematic

‘One firm that has exploited the strategy of experience curve to

‘Matsushita’s strategy was to build global volume as rapidly as

• Because of differences in factor costs, certain countries have a

• Japan excels in the production of automobiles and consumer

What does all these mean?

• A firm does benefit by basing each of its value creation

Firms that pursue such a strategy are said to be

General Motors (GM) did precisely the same thing.

• Toyota has, in the production of cars.

Strategic choices for

Pressures for Cost

Pressures for Local

world cars to the U.S.

Strategic choices for Global

1. Multi domestic strategy

Strategic choices for Global Expansion

Strategic choices for Global

Strategies for Global

Strategies for Global

Strategies for Global

– Innovation from local R&D

Multi-domestic strategy presented Philips with many challenges:

– High costs due to tailored products and duplication across

Strategies for Global

• But certain core competencies in R&D, marketing and

Strategies for Global

Strategies for Global

Semiconductor industries often adopt Global Strategy.

Strategies for Global

The global strategy presented Matsushita with the following

– Problem of strong yen

Strategies for Global

Strategies for Global

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