Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 08 - Strategy Formulation and Implementation
Chapter 8: Strategy Formulation and Implementation
Learning Objectives and Chapter Summary
1. DISCUSS the meaning, needs, benefits, and approaches of the strategic planning
process for today's MNC.
There is a growing need for strategic management among MNC’s. Some of the
2. UNDERSTAND the tension between pressures for global integration and national
responsiveness and the four basic options for international strategies.
Globalization is the production and distribution of products and services of a
homogeneous type and quality on a worldwide basis. National responsiveness is the
need to understand the different consumer tastes in segmented regional markets and
3. IDENTIFY the basic steps in strategic planning, including environmental scanning,
internal resource analysis of the MNC's strengths and weaknesses, and goal
formulation.
A strategic plan can take on an economic focus, a political focus, a quality focus, an
administrative coordination focus, or some variation of the four. The global
integration―national responsiveness framework―defines the four basic strategies
4. DESCRIBE how an MNC implements the strategic plan, such as how it chooses a
site for overseas operations.
Strategic planning is used by more MNC’s every year, although no definitive
evidence proves that this process always results in higher profitability. As with
8-1
5. REVIEW the three major functions of marketing, production, and finance that are
used in implementing a strategic plan.
Strategy implementation is the process of providing goods and services in accord
with the predetermined plan of action. This implementation typically involves such
6. EXPLAIN specialized strategies appropriate for emerging markets and international
new ventures.
Strategies for emerging markets and international entrepreneurship/new ventures
may require specialized approaches targeted to these unique circumstances.
Tremendous opportunities, as well as significant risks, exist in emerging markets.
MNCs attempting to capitalize on the opportunities in these markets may adopt fist-
mover strategies, strategies for the “Base of the Pyramid,” and several others,
The World of International Management: Big Pharma Goes Global
1. Summary:
This vignette discusses strategy in the pharmaceutical industry. Two major shifts are
occurring that are prompting companies to change their strategies. The first is the
growth of developing markets and in particular the market in India. The second is
the expiration of several important patents that allows competitors producing cheap
generic versions of the drugs to enter the market. To meet these major market
transformations, firms are reshaping their strategies. Some are merging and
acquiring other firms, others are forming alliances to gain expand their product
lines and research. In addition, firms are expanding their operations in emerging
markets, narrowing their focus to concentrate on a few promising areas, or mixing
generic with premium product offerings.
8-2
Chapter 08 - Strategy Formulation and Implementation
2. Suggested Class Discussion:
1. Why is strategic planning so important for pharmaceutical firms?
2. Consider the different approaches firms like GlaxoSmithKline, Bristol-Myers
Squibb, and Pfizer are using in this changing marketplace. Why do each of
these approaches make sense given the firms and the environments in question?
3. Many big pharmaceutical firms are focusing on India and its potentially
enormous market. How does this market differ from developed markets like the
United States for pharmaceutical firms? What changes do pharmaceutical
companies need to make to their strategies to succeed in this market?
3. Related Internet Sites:
BusinessWeek: {http://www.businessweek.com}.
Pfizer: {www.pfizer.com/home/}.
GlaxoSmithKline: {http://www.gsk.com/}.
Bristol-Myers Squibb:{http://www.bms.com/}.
Chapter Outline with Lecture Notes and Teaching Tips
Strategy Management
1) Strategic management is the process of determining an organization's basic mission and
long-term objectives then implementing a plan of action for attaining these goals.
2) All stages of organizational change incorporate levels of strategy from planning to
implementation. This includes innovative ways to improve a product to expanding to
international operations.
The Growing Need for Strategic Management
1) One of the primary reasons that MNCs need strategic management is to keep track of their
increasingly diversified operations in a continuously changing international environment.
2) This need is particularly obvious when one considers the amount of foreign direct
investment (FDI) that has occurred in recent years.
8-3
Chapter 08 - Strategy Formulation and Implementation
Benefits of Strategic Planning
1) Many MNCs are convinced that strategic planning is critical to their success, and these
efforts are being conducted both at the home office and in the subsidiaries. For example,
one study found that 70 percent of the 56 U.S. MNC subsidiaries in Asia and Latin
America had comprehensive 5- to 10-year plans.
a) Despite some obvious benefits, there is no definitive evidence that strategic planning
in the international arena always results in higher profitability.
b) Although strategic planning usually pays off, as with most other aspects of
international management, the specifics of the situation dictate success of the process.
Approaches to Formulating and Implementing Strategy
1) There are four common approaches to formulating and implementing strategy.
a) Economic Imperative: The economic imperative is a worldwide strategy based on
cost leadership, differentiation, and segmentation.
i) Typically products for which a large portion of value is added in the upstream
activities of the industry’s value chain
ii) Product is basically homogeneous and requires no alteration from country to
chain
c) Quality Imperative: The quality imperative involves strategic formulation and
implementation utilizing strategies of total quality management to meet or exceed
customers' expectations and continuously improve products and/or services.
i) Two interdependent paths:
(a) A change in attitudes and a raising of expectation for service quality
(b) The implementation of management practices that are designed to make
quality improvement an ongoing process
ii) total quality management, or TQM
(a) Quality is operationalized by meeting or exceeding customer expectations.
(b) The quality strategy is formulated at the top management level and is diffused
throughout the organization.
(c) TQM techniques range from traditional inspection and statistical quality
control to cutting-edge human resource management techniques.
d) Administrative Coordination: The administrative imperative involves strategic
formulation and implementation in which the MNC makes strategic decision based on
the merits of the individual situation rather than using a predetermined economically
or politically driven strategy.
2) Many large MNCs work to combine the economic, political, quality, and administrative
approaches to strategic planning.
8-4
Chapter 08 - Strategy Formulation and Implementation
Global and Regional Strategies
1) The globalization vs. national responsiveness conflict is a fundamental tension in
international strategic management: the globalization vs. national responsiveness conflict.
a) Global integration refers to the production and distribution of products and services of
a homogeneous type and quality on a worldwide basis.
b) National responsiveness refers to:
i) The need to understand the different consumer tastes in segmented regional
markets and respond to different national standards and regulations imposed by
autonomous governments and agencies
ii) The need to adapt tools and techniques for managing the local workforce
c) Global Integration vs. National Responsiveness Matrix―The issue of globalization vs.
national responsiveness can be analyzed conceptually via a two-dimensional matrix.
Figure 8-1 provides an example.
2) Global Integration vs. National Responsiveness Matrix: The issue of globalization vs.
national responsiveness can be analyzed conceptually via a two-dimensional matrix.
Figure 8-1 provides an example.
a) Quadrant 1: Global strategy refers to integrated strategy based primarily on price
competition.
b) Quadrant 4: Multi-domestic strategy refers to differentiated strategy emphasizing local
adaptation.
c) Quadrant 2: International strategy refers to mixed strategy combining low demand for
integration and responsiveness.
d) Quadrant 3: Transnational strategy refers to integrated strategy emphasizing both high
global integration and local responsiveness.
3) Summary and Implications of the Four Basic Strategies: The appropriateness of each
strategy depends on pressures for cost reduction and local responsiveness in each country
a company serves.
a) International strategy: valuable core competencies that host-country competitors do
not possess and face minimal pressures for local responsiveness and cost reductions
b) Multi-domestic strategy: high pressure for local responsiveness and low pressures for
cost reductions
c) Global strategy: low-cost strategy
d) A transnational strategy should be pursued when there are high cost pressures and high
demands for local responsiveness; difficult to pursue effectively.
The Basic Steps in Formulating Strategy
1) Strategic planning can be broken into:
a) Scanning the external environment for opportunities and threats
b) Conducting an internal resource analysis of company strengths and weaknesses
c) Formulating goals in light of the external scanning and internal analysis.
2) See Figure 8–2 and the following.
8-5
Chapter 08 - Strategy Formulation and Implementation
Environmental Scanning
1) Environmental scanning is the process of providing management with accurate forecasts
2) Environmental scanning is central to discovering if an MNC can survive in a particular
region; however, it is only effective if it is done consistently. The environment changes
Internal Resource Analysis
1) Internal resource analysis helps the firm evaluate its current managerial, technical,
material, and financial resources and capabilities to better assess its strengths and
weaknesses.
2) Key success factors (KFS) are factors necessary for a firm to effectively compete in a
market niche.
3) The balance between environmental scanning and internal resource analysis can be quite
delicate.
Goal Setting for Strategy Formulation
1) In practice, goal formulation often precedes the first two steps of environmental scanning
and internal resource analysis.
2) Profitability and marketing goals almost always dominate the strategic plans of today's
MNCs.
a) MNCs generally need higher profitability from their overseas operations than they do
from their domestic operations.
b) International markets offer an ideal alternative to the desire for increased growth and
profitability.
c) Profitability and marketing tend to be more externally environmentally responsive,
whereas production, finance, and personnel functions tend to be more internally
controlled.
Teaching Tip: Several top academic journals publish articles occasionally on international
strategic management issues. Examples include the following:
Academy of Management Journal: {http://www.aom.pace.edu/amj/}
Journal of International Marketing: {http://ciber.bus.msu.edu/jim/}
Journal of International Business Studies: {http://www.jibs.net/}
European Journal of Marketing: {http://www.emeraldinsight.com/ejm.htm}
8-6
Chapter 08 - Strategy Formulation and Implementation
Strategy Implementation
1) Strategy implementation refers to the process of providing goods and services in accord
with a plan of action. Quite often, this plan will have an overall philosophy or series of
guidelines that direct the process.
2) International management must consider three general areas in strategy implementation:
location, entry and ownership strategies (Chapter 9), and functional strategies (marketing,
production, finance, etc.).
Location Considerations for Implementation
1) In choosing a location, today's MNCs have two primary considerations: the country and
the specific locale within the chosen country.
a) The Country: Traditionally, MNCs have invested in highly industrialized countries
and research reveals that annual investments have been increasing substantially.
i) Advanced industrialized countries offer the largest markets for goods and services.
ii) Another consideration in choosing a country is the amount of government control
and restrictions on foreign investment.
iii) MNCs examine the specific benefits offered by host countries, including low tax
rates, rent-free land and buildings, low-interest or no-interest loans, subsidized
energy and transportation rates, and a well-developed infrastructure.
b) Local Issues: Once the MNC has decided the country in which to locate the firm must
choose the specific locale. A number of factors influence this choice.
i) Common considerations include access to markets, proximity to competitors,
availability of transportation and electric power, and desirability of the location for
iii) Business initiatives in frontier markets require careful strategic consideration, such
as joint ventures.
Combining Country and Firm-Specific Factors in International Strategy
1) A simple framework that builds upon the integration-responsiveness framework can be
used to understand the interaction between the relative attractiveness of different country
locations for a given activity and the firm-level strengths that can be leveraged in that
location. See Figure 8-4 in the text for an illustration of this concept.
a) The first set of factors are known as country-specific advantages (CSAs) and can be
based on natural resource endowments, the labor force, or less tangible factors
(education and skills, institutional protections of intellectual property, entrepreneurial
dynamism, etc.).
8-7
Chapter 08 - Strategy Formulation and Implementation
b) The second set of factors are firm-specific advantages (FSAs) and are unique
capabilities proprietary to the firm that may be based on product or process
technology, marketing or distributional skills, or managerial know-how.
The Role of the Functional Areas in Implementation
1) Strategies are implemented via the primary functional areas.
a) Marketing: The implementation of strategy from a marketing perspective must be
determined on a country-by-country basis. It is built around the well-known “four Ps”
of marketing:
i) Product: If the product is designed specifically to meet an overseas demand,
however, the process is more direct.
ii) Price largely is a function of market demand.
the home office and carried out by the overseas affiliate or branch.
i) Problems with transfers of funds: revaluation of currencies, volatile monetary
exchange rates
ii) Countertrade continues to be a popular form of international business, especially in
less developed countries and those with nonconvertible currencies.
Teaching Tip: For anyone interested in doing a better job keeping up with international news,
Interactive Global News is an international electronic news source sponsored by Pangaea
Communications. The site provides a substantive and thought provoking series of news briefs
and commentaries on global business issues. The site is available to the public through
{http://www.pangaea.net/}.
Specialized Strategies
1) Specialized strategies are necessary in certain situations. Recently, firms have been using
specialized strategies for developing and emerging markets, and for international
entrepreneurship and new ventures.
2) Two that have received considerable attention in recent years are strategies for developing
and emerging markets and strategies for international entrepreneurship and new ventures.
Strategies for Emerging Markets
1) Emerging markets have assumed an increasingly important role in the global economy,
but pose exceptional risks due to their political and economic volatility and relatively
underdeveloped institutional systems.
8-8
Chapter 08 - Strategy Formulation and Implementation
a) First Mover Strategies: Significant economies associated with early entry include
learning effects, scale economies, opportunities for developing alliances, and
advantages over competitors. These advantages are particularly prevalent in
privatization situations. Risks include premature entry.
b) Strategies for the “Base of the Pyramid”: An area of increasing focus for MNCs is
the 5 billion plus potential customers around the world who have heretofore been
mostly ignored by international business, even within emerging economies, where
most MNCs target only the wealthiest consumers.
i) Companies must consider smaller-scale strategies and build relationships with
low-cost model may be easier than removing cost and features from high-cost
models.
iv) The BOP strategy is challenging to implement.
Entrepreneurial Strategy and New Ventures
1) Due to advances in telecommunication and Internet technologies, as well as greater
efficiencies in transportation, small and medium companies are getting increasingly
involved in international management.
a) International Entrepreneurship: International entrepreneurship is a combination of
innovative, proactive, and risk-seeking behavior that crosses national borders and is
intended to create value in organizations.
b) International New Ventures and “Born Global” Firms: Born global firms are firms
that engage in significant international activity a short time after being established.
The World of International Management―Revisited
Questions & Suggested Answers
1. Which imperative is likely to be most important to MNCs in this decade: economic,
political, or quality?
Answer: The answer to this question probably depends on the MNC in question and
the situation at hand. The global recession that swept through markets in 2008 to
2010 required many MNCs to rethink their strategies. Toyota’s problems in 2009
8-9
