978-0077606121 Chapter 9 Lecture

Type

Quiz

Book Title

International Business: The Challenge of Global Competition 13th Edition

ISBN 13

978-0077606121

April 7, 2019

CHAPTER 9

1 International Competitive Strategy

2 Learning Objectives

3LO 9-1 Explain international strategy, competencies, and international competitive advantage.

4LO 9-2 Describe the steps in the global strategic planning process.

5LO 9-3 Explain the purpose of mission statements, vision statements, values statements, objectives,

quantified goals, and strategies.

6LO 9-4 Explain home replication, multidomestic, global, and transnational strategies and when to

use them.

7LO 9-5 Describe the methods of and new directions in strategic planning.

NOTE:

International business statistics, data, and facts about countries, regions, governments, and companies can

change rapidly and dramatically. We recommend that you update this information regularly.

As an adopter of this text, McGraw-Hill offers you a complementary online resource each month, the

International Business Newsletter. The IB Newsletter gives you an array of timely and relevant articles,

videos, country profiles, teaching suggestions, and data resources to add breadth, depth, and richness to

the ever-changing topic of international business.

iGlobe is also a way to keep your courses current. In partnership with PBS, iGlobe is a free video

service for McGraw-Hill adopters that allows you to download breaking news videos onto your desktop

to show in class or online. Updated monthly, these streaming videos are complete with teaching notes and

discussion questions. Key concepts for each video are identified to save you time! Visit

www.mhhe.com/ball13e, or talk to your McGraw-Hill sales representative for more information about

iGlobe or the IB Newsletter.

Overview

Up to this chapter, the text has introduced the broad environmental context in which international

businesses compete. This discussion has included the theoretical framework for international trade and

investment, the international monetary and other organizations that influence international business, and

the financial, economic, physical, social, political, legal, and other external, uncontrollable forces found in

the IB environment. In this chapter, our attention shifts to the business itself, including the functional

areas and the actions international managers can take to help their companies compete more effectively.

In the global marketplace, a company must be able to quickly identify and exploit opportunities wherever

they may occur. To do this effectively, managers must fully understand why, how, and where they intend

to do business, now and over time. Managers need to have a clear understanding of their company’s

mission and vision and an understanding of how they plan to compete with other companies. In order to

meet these challenges, managers need to understand their company’s strengths

and weaknesses along with their competitors’. They must also be able to identify opportunities and

threats. Strategic planning provides valuable tools for helping managers address these global challenges.

International strategy is concerned with the way firms make fundamental choices about developing and

deploying scarce resources internationally. International strategy involves decisions that deal with all of

the various functions and activities of a company, not merely a single area such as marketing or

production. To be effective, a company’s international strategy needs to be consistent among the various

functions, products, and regional units of the company as well as with the demands of the international

competitive environment.

The goal of international strategy is to achieve and maintain a unique and valuable competitive position,

both in a nation as well as globally, a position that has been termed “competitive advantage.” This

suggests that the international company either must perform different activities than its competitors, or

else perform the same activities but in different ways. To create a competitive advantage which is

sustainable over time, the international company should try to develop skills, or competencies, that (1)

create value for customers, and for which customers are willing to pay, (2) are rare, since competencies

shared among many competitors cannot be a basis for competitive advantage, (3) are difficult to imitate or

substitute for, and (4) the firm must be organized to allow it to exploit fully the competitive potential of

these valuable, rare, and difficult to imitate competencies. In attempting to develop competitive

advantage, a company’s managers are forced to make choices regarding what to do, and what not to do,

now and over time. Different companies make different choices, and these choices have implications for

each company’s ability to meet the needs of customers and to create a defensible competitive position

internationally. Without adequate planning, managers are more likely to make decisions that do not make

good sense competitively, and the company’s international competitiveness may be harmed.

Many global and multinational companies have instituted formal worldwide strategic planning to identify

opportunities and threats, formulate strategies to handle them, and stipulate the means to finance them.

Global strategic planning provides a formal structure in which managers analyze the firm’s external

environments, analyze the firm’s internal environments, define the company’s business and mission, set

objectives, quantify goals, and formulate strategies and tactics to achieve them. Operating managers do

the planning and with the assistance of their planning staff.

9 Suggestions and Comments

1. This chapter is a “big picture” chapter and students tend to feel comfortable with its material.

2. This is a good place to draw on what students may have learned in any earlier strategy courses.

3. This is a conceptually complex chapter, so use of the figures and examples is helpful.

4. Examples of strategic challenges abound in current business news.

11 Student Involvement Exercises

1. Analyze the relationship between where certain types of decisions are made and the overall

business strategy. Then move to why decisions are best made where they are. (Contrast, for

example, retail level international banking with a retail clothing chain.)

2. Report on sources of the different types of information that need to be reported by international

business units to the parent.

3. Analyze an international corporation through Internet research to identify the company strategy.

Give examples of how strategy is being implemented.

13 Guest Lecturers

1. Management faculty could speak on control and information.

2. Executives from international businesses could describe their strategy-building process.

3. Someone experienced in international business planning from the local business community would

be a good outside speaker.

Worldview

The focus of this Worldview explores “Regional Strategies for Competing Globally.” Although some

researchers have argued that a “borderless” world is emerging from recent advances in

telecommunications and computer technology, decling transportation costs, and economic liberalization

policies, most large multinationals continue to generate the majority of their revenues within a single

region. This suggests that, for most companies and industries, the world marketplace is regional rather

than global in nature. This provides a good foundation for discussion, using such questions as, “Is the

world truly evolving to a global market, and therefore regional or semiglobalization strategies are merely

a stage in the evolution of international companies? Or is there a “threshold of internationalization”

beyond which a multinational’s performance declines, not merely short term but well into the future?,”

and “Even if the world is moving toward a greater degree of globalization of markets and competition,

might there still be value associated with a conceptual view of international strategy in the context of

region-by-region analysis rather than nation-by-nation or on a global basis?” While such questions are

very broad and “big picture” in their nature, and thus represent a conceptual stretch for many students,

discussing these issues in class can yield a vibrant and insightful discussion. The instructor may wish to

use a debate to argue for and against the viability of a “regional strategy” perspective as a long term

approach, for example. Alternatively, the instructor may wish to have an exercise intended to incorporate

scenario analysis techniques to identify the variables that may influence, for example, whether and to

what extent regional versus global perspectives may predominate in discussion and relevance during

coming years.

Global Debate

The focus of this Global Debate explores “Google’s Values and Strategy versus the China

Opportunity.” This is an excellent situation because students know Google and should be aware that it

as an MNC of the highest order. This also gives excellent examples of the impact of international

situations and dynamically changing environmental factors on implementation of strategic plans and how

firms must rapidly change their plans in response to local market conditions. It also brings in the related

issues of corporate mission and values as drivers of strategic plans.

This situation is continuing to unfold as this book goes to press, developing as the external and

competitive forces change. Discussion can be initiated through questions such as, “Did Google make a

good decision to leave China? What do you think?” An update on developments related to the position of

Google and other companies in China can lead to a discussion of how rapidly the changing global market

environment has impacted an organization your students know. This discussion could serve as an

introduction to international competitive strategies. A classroom discussion option is to assign individuals,

groups, or the class as a whole to examine the evolving situation in China with respect to market access,

censorship, and related issues, both with respect to Google and more generally. The students’ findings can

provide a strong basis for discussion or debate on these emerging issues.

The Global Path Ahead

The focus of this The Global Path Ahead explores a student’s decision to study international busines and

to gain international experience through an extended internship in China, due to his recognition of the

strategic value of learning more about this important emerging economy. He preceded his overseas work

with an extended immersion language program and familiarization with the country, in an effort to help

mitigate the effects of culture shock. Despite these efforts, he still experienced some of the challenges

associated with living and working in another culture, and the importance of altering his perspective on

the situation in order to be able to function optimally. After graduating from university, he chose to

deepen his experience base by returning the China for an additional two years of work, language

acquisition, and cultural familiarization. He concludes his discussion by providing recommendations to

students interested in living and working abroad, including the value of having a clear objective and plan

for what you hope to achieve from your international experience.

At least some of your students are likely to be interested in exploring opportunities associated with

international strategy and strategic planning. The “Resources for Your Global Career” section at the end

of The Global Path Ahead has a number of different sources that provide valuable tools and perspectives

on these topics, as well as examples of different strategic plans and strategic planning approaches.

15 Mini-Case 9.1, “The Globalization of Wal-Mart”

This mini-case provides an opportunity for students to examine the globalization efforts of the world’s

largest retailer, Wal-Mart. The mini-case examines Wal-Mart’s internationalization process, including

some of the failures and challenges that the company experienced as it expanded from the U.S. Because

of their familiarity with the company, students typically are interested in this mini-case and are excited to

discuss it in class. The following questions can help to focus this discussion.

1. Why has Wal-Mart viewed international expansion as a critical part of its strategy? Wal-Mart had

overpowered its domestic competitors and established a dominant position in the U.S. retail industry,

but by the 1990s it was facing limits to growth in its domestic market and had to begin looking abroad

for medium- and long-term growth opportunities.

2. What did Wal-Mart do to enable the company to achieve success in Canada and Latin America?

Why did Wal-Mart fail to achieve similar success in Europe? Wal-Mart’s success in Canada might

be attributed to cultural similarities, which may have enhanced the company’s ability to understand and

successfully turn around the poorly performing Woolco chain of stores. Teams from the U.S. wee able

to be brought in to facilitate the process, and the company has more than doubled the number of stores

in Canada since then. Latin America involved more substantial differences on a range of cultural,

economic and political dimensions, so Wal-Mart chose to initially enter via a joint venture with a local

partner that had strong local expertise. Wal-Mart learned from its Mexican partner and subsequently

increased its ownership to a majority equity position. The company then entered Brazil with a joint

venture in which Wal-Mart had a 60 percent ownership position. In Mexico, Brazil and Argentina,

Wal-Mart entered markets in a phased, learning-focused manner and in growing markets that lacked

dominant, existing multinational competitors.

Wal-Mart’s entry into Europe encountered numerous challenges, particularly since growth was slower

in these markets and there were already established international and domestic competitors with strong

market knowledge, established competencies, and a willingness to compete vigorously with the new

Wal-Mart entrant. In Germany, Wal-Mart had to not only meet the challenge of established

competitors, but also an internal challenge of integrating two different companies, using expatriate

managers that lacked cultural and language skills, and a political context that was not

flexible to Wal-Mart’s desires.

3. What should Wal-Mart do—or not do—to help ensure that the company achieves success in

China and India? Wal-Mart has had good initial success in China. However, sustained success there

as well as success in India will require the company to continue to be aware of, and responsive to, the

many changes that are occurring in these two rapidly developing nations. New competitors, different

cultural contexts, challenging and sometimes nontransparent government policies are but a few of the

issues that Wal-Mart will have to navigate in its efforts to successfully expand in these markets.

16 Lecture Outline

Opening Section

Kenichi Ohmae’s quote on competitive advantage as the driver of IB is crucial to global success. Finding

and leveraging competitive advantage rests on the seeming paradox: planning in chaos. With constant

change bordering on chaos, with limited predictability in a fast-change world, planning might appear

futile. Yet, to succeed in today’s competitive global marketplace, managers must have a clear

understanding of the company’s mission, a vision for how to achieve that mission, and an understanding

of how they will compete with other companies. Managers must understand the company’s strengths and

weaknesses, and compare them with those of worldwide competitors. Strategic planning provides

valuable tools to assist managers in addressing these challenges, as discussed in this chapter.

The opening vignette, “Thinking strategically about the future in an uncertain world,”

highlights the uncertainty that management face as they try to compete in a changing world marketplace.

The vignette discusses the potential value of scenario analysis as tool for helping managers to challenge

assumptions based on historical factors and to more realistically envision and plan for uncertainties and

discontinuous events.

I. The Competitive Challenge Facing Managers of International Businesses

To succeed globally, firms must quickly identify and exploit opportunities wherever they occur,

domestically or internationally. Managers need a clear understanding of company vision, as well as

its strengths and weaknesses, to deal with competition.

II. What Is International Strategy, and Why Is It Important?

A. International strategy is concerned with the way firms make choices about developing and

deploying scarce resources internationally. Strategy must be consistent among the company’s

various functions, products, and regional units (internal consistency) and with the demands of the

international competitive environment (external consistency).

B. The goal of international strategy is to achieve competitive advantage. To create long-term

competitive advantage, a company must develop competencies that:

1. create value for which customers are willing to pay,

2. are rare,

3. are difficult to imitate or substitute for,

4. allow the firm to be organized to fully exploit the competitive potential of these

competencies.

C. The challenge for international companies is that resources are always scarce, there are many

alternatives for using these scarce resources (for example, which nations to enter?), and these

alternatives are not equally attractive. Managers make choices regarding what to do, and what not

to do, now and over time. Different companies make different choices with implications for each

company’s ability to meet customer’s needs and create a defensible competitive

position internationally. Without adequate planning, managers are more likely to make decisions

that do not make good sense competitively, and the company’s international competitiveness may

be harmed.

III. Global Strategic Planning

A. Why Plan Globally?

Formal global strategic planning (Fig. 9.1) provides managers a way to identify opportunities and

threats, formulate strategies to handle them, and stipulate how to finance their implementation. Plans

provide for consistency of action among the managers. Bain & Company’s research reports that

strategic planning continues to be among the most commonly used management tool among global

managers. NOTE: There is a growing tendency to standardize marketing strategies. Standardization

can be the result of strategic planning.

B. Global Strategic Planning Process (Fig. 9.1)

The process provides a formal structure for (1) analyzing a firm’s external environments, (2)

analyzing a firm’s internal environments, (3) defining a company’s business and mission (4) setting

corporate objectives, (5) quantifying goals, (6) formulating strategies and (7) making tactical plans.

1. Analyze Domestic, International and Foreign Environments.

Managers must know what the present force values are and where they appear to be going.

Environmental, social, and business trends are more critical to strategy than in the past 5 years.

However, few companies react to them.

2. Analyze Corporate Controllable Variables

Includes a situational analysis and a forecast. Various functional areas will provide input to the

planning staff, who will prepare a report for the strategy planning committee. The committee

wants to know where the company is heading, what are its strengths and weaknesses, etc.

Management often conducts a value chain analysis, which considers three key questions:

a. Who are the company’s target customers?

b. What value does the company want to deliver to these customers?

c. How will this customer value be created?

Value chain analysis focuses on the third question. The goal is to enable management to

determine the set of activities that will comprise the company’s value chain, including which

activities the company will do itself and which will be outsourced. Management must consider

where to locate various value chain activities and to examine linkages among the activities in the

value chain. Linkages must be examined across activities within the company and manage

relationships with external entities (suppliers, distributors, or customers) within and across

nations. The desired outcome is identification and establishment of a superior set of

well-integrated value chain activities and linkages. This system will permit the company to

effectively and efficiently develop, produce, market, and sell the company’s products and services

to the target customers and create the basis for global competitive advantage. A simplified value

chain is given in Fig. 9.2.

3. Knowledge as a Controllable Corporate Resource.

In a highly competitive, rapidly changing, knowledge-intensive economy, companies achieve

competitive advantages through leveraging organizational knowledge across national boundaries.

Companies face ongoing challenges of creating mechanisms that will systematically and routinely

identify opportunities for developing and transferring knowledge throughout international

operations, and for ensuring that subsidiaries are willing and able to both share what they know

and to absorb knowledge from other units of the company. This process is referred to as

knowledge management. Since much valuable knowledge is tacit (known well by the individual

but difficult to express verbally or document), systems are needed to convert tacit knowledge into

explicit, codified knowledge and then make this

knowledge accessible quickly and effectively to other employees that need it. It is often necessary

to establish facilities in other international locations to gain access to required knowledge.

4. Define the Corporate Mission, Vision, and Values Statements.

These broad statements communicate to the firm’s stakeholders what the company is and where it

expects to go. Some firms have all three statements; others combine two or more.

a. Mission Statement defines the firm’s purpose and scope.

b. Vision Statement describes the desired future position, what it hopes to accomplish if it can

acquire needed competencies and successfully implement its strategy.

c. Values Statement is clear, concise description of the fundamental values, beliefs, and

priorities of the organization’s members.

NOTE: Additional examples can be found on company websites.

5. Set Corporate Objectives.

Objectives direct the firm’s course of action, maintain it within the boundaries of the stated

mission, and ensure its continuing existence.

6. Quantify the Objectives.

If objectives can be quantified, they should be. Firms frequently do have non-quantifiable or

directional goals.

7. Formulate the Competitive Strategies

a. Managers will formulate alternative competitive strategies and corresponding action plans

that seem plausible, taking into consideration the directions of external forces and the firm’s

strengths, weaknesses, opportunities, and threats.

b. Companies competing internationally confront two opposing forces: (1) reduction of costs

and (2) adaptation to local markets. To be competitive, firms must do what they can to lower

costs per unit so customers will not perceive their products or services as being too

expensive. This results in pressure for some of the company’s facilities to be located in places

where costs are low, as well as developing products that are highly standardized. Managers

must respond to local pressures to modify products to meet local market demands where they

do business. This pressures the company to differentiate strategy and product offerings from

nation to nation, reflecting differences in distribution channels, governmental regulations,

cultural preferences, and similar factors. Modifying products and services for the specific

local market requirements is costly.

As a consequence of the two opposing pressures, reduction of costs and local adaptation,

companies have four basic strategies for competing internationally: Home Replication

Strategy, Multidomestic Strategy, Global Strategy, and Transnational Strategy. As suggested

in Fig. 9-3, the strategy that would be most appropriate for the company, overall and for

various activities in the value chain, depends on the amount of pressure the company faces to

adapt to local markets and achieve cost reductions. The Worldview discusses the potential

value of the concept of regional strategies, sometimes termed semiglobalization, particularly

due to the potential to introduce a perspective that is neither nation-by-nation nor global in its

orientation. Such a perspective also reflects the tendency for many multinationals to generate

a majority of their revenues from a single region of the world.

c. Each strategy has its own set of advantages and

disadvantages:

i. Home Replication Strategy centralizes product development strategy in the home

country, and after differentiated products are developed in this home market, they are

transferred abroad to capture additional value. This strategic choice is best if there is

weak pressure for local responsiveness and cost reductions. This can cause high operating

costs because of duplicate manufacturing facilities across markets served.

ii. Multidomestic Strategy is used when there is strong pressure to adapt products or

services for local markets. Decision-making is decentralized to allow the company to

modify its products and to respond to changes in local competition and demand. By

tailoring products for specific markets, companies may charge higher prices. Local

adaptation increases cost structure. The company will have to invest in additional local

capabilities and knowledge. Adapting products too much may take away the

distinctiveness of a company’s products. Local adaptation may change over time. The

cost and complexity of coordinating a range of different strategies and product offerings

across national and regional markets can be high.

iii. Global Strategy is used when a company faces strong pressures for reducing

costs and limited pressure to adapt products for local markets. Strategy and decision

making is typically centralized, and the company offers standardized products and

services. Value chain activities are located in only one or a few areas to achieve

economies of scale. Emphasis is on close coordination and integration of activities across

products and markets, and development of efficient logistics and distribution capabilities.

Global strategies confront challenges such as limited ability to adjust to changes in

customer needs across national or regional markets, increased transportation and tariff

costs from exporting products from centralized production sites, and risks of locating

activities in a centralized location.

iv. Transnational Strategy is used when a company simultaneously confronts

pressures for cost effectiveness and local adaptation, and when there is a potential for

competitive advantage from simultaneously responding to these two divergent forces.

The location of a company’s assets and capabilities is based on where it would be most

beneficial for each specific activity. “Upstream” value chain activities are more

centralized. “Downstream” activities more decentralized, located closer to the customer.

Achieving and maintaining optimal balance in locating activities is a challenge.

Management must ensure that comparative advantages of the locations of their various

value chain activities are captured and internalized. Complexity of strategic decisions and

supporting structures and systems of the organization will be much greater with a

transnational strategy.

v. Regional Strategy, as discussed in the Worldview, has several strengths,

including the potential value to be derived from thinking of international strategy within

the context of a region-by-region perspective, rather than merely a nation-by-nation

versus a global basis. To the extent that an international company’s market position varies

substantially across regions, strategies may also need to vary by region in order to

accommodate the differing competitive circumstances that confront the company. Yet,

even when management consider the appropriate strategy to use within each region, it

may be useful to consider the relative extent of pressure for local adaptation versus

pressure to reduce costs.

8. Standardization and Planning

Not all organizational activities face the same mix of globalization and localization pressures.

Many top execs feel marketing strategies are best determined locally because of local

environmental differences.

9. Scenarios – multiple, plausible stories about the future

a. “what-if” scenarios help managers become aware of critical elements in the uncontrollable

environment forces.

b. Scenarios allow managers to envision alternatives outside their traditional frame of reference

10. Contingency Plans – companies prepare contingency plans for worst- and best-case scenarios.

11. Prepare Tactical Plans (also called operational) – these spell out in detail how the objectives will

be reached.

C. Strategic Plan Features and Implementation Facilitators

1. Sales Forecasts and Budgets – these are two prominent features of the strategic plan. They are

both a planning and a control technique.

a. Sales Forecast – a prediction of future sales performance

b. Budget – an itemized projection of revenues and expenses for a future time period

2. Plan Implementation Facilitators - two of the most important are policies and procedures.

a. Policies are broad guidelines issued by upper management to assist lower level

managers to handle recurring problems.

b. Procedures describe how certain activities will be carried out, thus ensuring uniform

action throughout the firm

D. Performance Measures – 3 ways to measure if a strategy is proceeding successfully or needs

modification:

1. Success in obtaining and applying required resources

2. Effectiveness of company’s personnel performance

3. Progress toward achieving mission, vision, and objectives in a consistent manner in line

with company’s stated valuesMeasurement tools include balanced scorecard and triple-

bottom-line accounting

E. Kinds of Strategic Plans

Time Horizon – short, medium, and long term

1. Level in the Organization – If firm has four organizational levels (Fig. 9.4), there will be four

levels of plans. Each will be more specific and for a shorter time frame than it is at the level

above.

F. Methods of Planning

1. Top-Down Planning – corporate headquarters develops and provides guidelines.

a. Disadvantages – restricts initiative at lower levels and shows insensitivity to local

conditions.

b. Advantages – headquarters should be able to formulate plans that ensure optimal use of

firm’s resources.

2. Bottom-Up Planning – lowest levels inform top management of what they expect to do.

a. Advantage – those responsible for attaining the goals are formulating them

b. Disadvantage – no guarantee that the sum total of the goals will coincide with those of

headquarters.

3. Iterative planning (Fig. 9.4) – combine aspects of bottom-up and top-down planning.

G. New Directions in Planning

Strategic management has replaced older planning processes and changes have been made in

three areas: (1) who does the planning, (2) how it is done, and (3) the contents of plan.

1. Who Does Strategic Planning? – senior operating managers, not CEO and planning staffs

2. How Strategic Planning Is Done – less structured format and a shorter document. Top

management generally accepts fact that a good strategic planning process must allow ideas to

surface from anywhere and at any time. (Fig. 9.1)

3. Contents of the Plan - concerned with issues, strategies, and implementation and with

incorporating creative, forward-looking ideas essential to competitive success within

changing and uncertain international environment. Staying competitive demands long-term

perspective to strategic decision-making and resource allocation decisions.

H. Summary of the International Planning Process

1. Top management must assume a more explicit decision-making role.

2. Planning must change from forecasting to an exercise in creativity.

3. Planning processes and tools must reflect a mindset that is obsessed with being first to

recognize change.

4. Planner must be a crusader for action and an alter ego to line management.

5. Strategic planning must be restored to the core of line management responsibilities.