Formulating Strategy Chapter Prentice Chapter Chapter - Overview  Reasons for going international  Strategic formulation process  Steps in developing international and global strategies Prentice Chapter Strategic Planning and Strategy  The process by which a firm’s managers evaluate the future prospects of the firm and decide on appropriate strategies to achieve long-term objectives is called strategic planning  The basic means by which the company competes – its choice of business or businesses in which to operate and the ways in which it differentiates itself from its competitors – is its strategy Prentice Chapter Reasons for Going International  • • • • Reactive Reasons Globalization of competitors Trade barriers Regulations and restrictions Customer demands Prentice Chapter Reasons for Going International (contd.)  • • • • Proactive Reasons Economies of scale Growth opportunities Resource access and cost savings Incentives Prentice Chapter The Strategic Management Process (Exhibit 6-1) Strategic Planning Process Define/clarify mission and objectives Assess environment for threats, opportunities Assess internal strengths and weaknesses Consider alternative strategies using competitive analysis Choose strategy Prentice Chapter 6 The Strategic Management Process Implementation Process (contd.) Prentice Implement strategy through complementary structure, systems, and operational processes Set up control and evaluation systems to ensure success, feedback to planning Chapter Steps in Developing International and Global Strategies            Mission and objectives Environmental assessment Internal analysis Competitive analysis Global and international strategic alternatives Approaches to world markets Global Integrative strategies Using e-business for global expansion E-global or e-local Entry strategy alternatives Strategic choice Prentice Chapter Environmental Scanning  It is the process of gathering information and forecasting relevant trends, competitive actions, and circumstances that will affect operations in geographic areas of potential interest Prentice Chapter Major Variables Covered in Environmental Scanning  Political instability  Currency instability  Nationalism  International competition Prentice Chapter 10 Pressures to Regionalize  Unique consumer preferences resulting from cultural or national differences  Domestic subsidies  New production technologies that facilitate product variation for less cost than before Prentice Chapter 14 Using E-Business for Global Expansion  “The real story is the profound impact this medium will have on corporate strategy, organization and business models Our research reveals that the Internet is driving global marketplace transformation and paradigm shift in how companies get things done, how they compete and how they serve their customers.” www.IBM.com Prentice Chapter 15 Benefits of B2B (Exhibit 6-6) Better relationships with distributors/channels Improved customer loyalty Rapid entrance into new geographical markets Better customer service Lower operational costs Expanded sales channel 10 Prentice 20 30 40 Chapter 50 60 70 16 Global B2B/B2C Strategy To assess the potential competitive position of the company, managers must ask themselves the following questions with respect to B2B/B2C: • Does the exchange provide a technology solution that helps industry-trading partners to business more efficiently? • Is the exchange known to be among the top 3-5 within its vertical industry? • Does the exchange offer industry-specific technology and expertise that gives it an advantage over generic exchange-builders? Prentice Chapter 17 Conditions Favoring Going E-Global “The global beachhead strategy makes sense when trade is global in scope; when the business does not involve delivering orders; and when the business model can be hijacked relatively easily by local competitors.” M Sawhney and S Mandal Prentice Chapter 18 Conditions Favoring Going E-Local “[The e-local/regional approach] is preferable under three conditions: when production and consumption are regional rather than global in scope; when customer behavior and market structures differ across regions but are relatively similar within a region; and when supply-chain management is very important to success.” Sawhney and Mandal Prentice Chapter 19 Entry Strategy Alternatives (In order of ascending risk)         Exporting Licensing Franchising Contract manufacturing Turnkey operations Management contracts International joint ventures (IJVs) Fully owned subsidiaries Prentice Chapter 20 International Entry Strategies: Advantages and Critical Success Factors (Exhibit 6-7) Advantages Critical Success Factors Exporting Low risk No long-term assets Easy market access and exit Choice of distributor Transportation costs Tariffs and quotas Licensing No asset ownership risk Quality and trustworthiness of licensee Appropriability of intellectual property Host-country royalty limits Strategy Fast market access Avoids regulations and tariffs Franchising Little investment or risk Quality control of franchisee and franchise operations Fast market access Small business expansion Prentice Chapter 21 International Entry Strategies: Advantages and Critical Success Factors (contd.) Strategy Advantages Critical Success Factors Contract manufacturing Limited cost and risk Reliability and quality of local contractor Operational control and human rights issues Short-term commitment Turnkey operations Revenue from skills and technology where FDI restricted Reliable infrastructure Sufficient local supplies and labor Repatriable profits Reliability of any govt partner Management contracts Low-risk access to further strategies Opportunity gain longer-term position Prentice Chapter 22 International Entry Strategies: Advantages and Critical Success Factors (contd.) Strategy Advantages Critical Success Factors Joint ventures Insider access to markets Share costs and risk Leverage partner’s skill base, technology, local contacts Strategic fit and complementarity of partner, markets, products Ability to protect technology Competitive advantage Ability to share control Cultural adaptability of partners Wholly owned subsidiaries Realize all revenues and control Global economies of scale Strategic coordination Protect technology and skill base Acquisition provides rapid entry into established market Ability to access and control economic, political and currency risk Ability to get local acceptance Repatriability of profits Prentice Chapter 23 Factors Affecting Choice of International Entry Mode (Exhibit 6-8) Factor Category Firm Factors Prentice Chapter Examples     International experience Core competencies Core capabilities National culture of home country  Corporate culture  Firm strategy, goals, and motivation 24 Factors Affecting Choice of International Entry Mode (contd.)  Industry Factors  Location Factors Prentice Chapter  Industry globalization  Industry growth rate  Technical intensity of industry  Extent of scale and location economies  Country risk  Cultural distance  Knowledge of local market  Potential of local market  Competition in local market 25 Factors Affecting Choice of International Entry Mode (contd.)  Venture-specific Factors Prentice Chapter  Value of firm – assets risked in foreign location  Extent to which know-how involved in venture is informal (tacit)  Costs of making or enforcing contracts with local partners  Size of planned foreign venture  Intent to conduct research and development with local partners 26 Strategic Choice The strategic choice of one or more of the entry strategies will depend on 1) 2) 3) a critical evaluation of the advantages (and disadvantages of each in relation to the firm’s capabilities, the critical environmental factors, and the contribution that each choice would make to the overall mission and objectives of the company Prentice Chapter 27 Alliance-based Entry Modes Alliance-based entry modes are more suitable under the following conditions: • Physical, linguistic, and cultural distance between the home and host countries is high • The subsidiary would have low operational integration with the rest of the multinational operations • The risk of asymmetric learning by the partner is low • The company is short of capital • Government regulations require local equity participation Prentice Chapter 28 ... its choice of business or businesses in which to operate and the ways in which it differentiates itself from its competitors – is its strategy Prentice Chapter Reasons for Going International. ..Chapter - Overview  Reasons for going international  Strategic formulation process  Steps in developing international and global strategies Prentice Chapter Strategic... Steps in Developing International and Global Strategies            Mission and objectives Environmental assessment Internal analysis Competitive analysis Global and international strategic