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Chapter 9 - International Competitive Strategy
CHAPTER 9
International Competitive Strategy
Learning Objectives
LO 9-1 Explain international strategy, competencies, and international competitive advantage.
LO 9-2 Describe the steps in the global strategic planning process.
LO 9-3 Explain the purpose of mission statements, vision statements, values statements, objectives,
quantified goals, and strategies.
LO 9-4 Explain home replication, multidomestic, global, and transnational strategies and when to use
them.
LO 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
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Chapter 9 - International Competitive Strategy
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.
Suggestions and Comments
1. This chapter is a “big picture” chapter and students tend to feel comfortable with its material.
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Chapter 9 - International Competitive Strategy
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.
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.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.
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Chapter 9 - International Competitive Strategy
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.
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
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
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Chapter 9 - International Competitive Strategy
position. The company then entered Brazil with a joint venture in which Wal-Mart had a 60 percent
Wal-Mart’s entry into Europe encountered numerous challenges, particularly since growth was
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
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,
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Chapter 9 - International Competitive Strategy
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.
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Chapter 9 - International Competitive Strategy
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
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Chapter 9 - International Competitive Strategy
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
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Chapter 9 - International Competitive Strategy
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)
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Chapter 9 - International Competitive Strategy
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.
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