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CHAPTER 11
International Strategic Management
Chapter Objectives
After studying this chapter, students should be able to:
1. Characterize the challenges of international strategic management.
2. Assess the basic strategic alternatives available to firms.
4. Describe the international strategic management process.
5. Identify and characterize the levels of international strategies.
LECTURE OUTLINE
OPENING CASE: Global Mickey
The opening case explores the Walt Disney Company’s international strategy. In
particular, the case examines the difficulties Disney has faced in establishing a theme
park in France.
Key Points
• The Walt Disney Company is a $34.4 billion MNC that currently earns over $150
million a year in royalties and licensing fees.
• Disney expanded its popular theme park concept in 1984 from its original two sites in
the U.S. to Japan. To limit its risk, Disney signed an agreement with the Oriental
Land Company, which financed and owns Tokyo Disneyland and pays Disney
royalties. Tokyo Disneyland proved to be an enormous success, and prompted
Disney to seek other foreign opportunities.
• Disney chose Paris, France, as the site for its next theme park in 1988. Paris was
selected because some 350 million people live within a two-hour plane ride of the
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• Euro Disneyland, however, proved not to have the fairy tale success of its Japanese
counterpart. Critics feared that it would threaten the French culture, and likened it to
“a cultural Chernobyl,” farmers condemned the decision of the government to sell
their land to Disney, and the company found itself under fire for its dress code,
training practices, and plans to ban alcohol from the park.
• So far, although some 11 million people visit the park each year, the project has
been struggling financially. Construction costs were higher than expected, visitors
CHAPTER SUMMARY
Chapter 11 explores the issue of international strategic management. The chapter
begins with a discussion of the basic components of international strategy, and then
moves on to consider the strategy formulation and implementation process. Finally,
strategy development is examined at the corporate level, the business level, and the
functional level.
THE CHALLENGES OF INTERNATIONAL STRATEGIC MANAGEMENT
• International strategic management is a comprehensive and ongoing
management planning process aimed at formulating and implementing strategies
that enable a firm to compete effectively internationally. The process of developing a
particular international strategy is referred to as strategic planning. Top-level
executives and senior managers are normally responsible for strategic planning.
Teaching Note:
Instructors may want to point out that students who are taking or who
have taken a course in business policy and strategy will find that a fair
amount of overlap will probably exist between the discussion of this material and the
concepts that were presented in the business policy and strategy course. In other
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EMERGING OPPORTUNITIES
How Does a Japanese Firm Compete in China? …Act More American
Toyota has been struggling in the Chinese market, where it ranks ninth with only
183,000 cars sold there in 2005. Toyota’s goal is to sell 1,000,000 cars a year in
• International strategic planners must also contend with cultural, political, and
geographical differences among countries.
STRATEGIC ALTERNATIVES
• MNCs typically follow one of four strategic alternatives. The first, the home
replication strategy, utilizes the firm’s domestically developed core competency or
firm-specific advantage as its main weapon in the foreign markets it enters. The
second alternative, the multidomestic strategy, requires the firm to view itself as a
collection of relatively independent operating subsidiaries, each of which focuses on
BRINGING THE WORLD INTO FOCUS
Master of the Furniture Universe
This section describes the Swedish furniture company IKEA, its philosophy, strategy,
and global expansion. It currently has 260 stores in 37 countries. The firm has a
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• The home replication strategy may be appropriate for firms when both the pressures
for global integration and the need for local responsiveness are low, while the
multidomestic approach is often employed when pressures for local responsiveness
COMPONENTS OF AN INTERNATIONAL STRATEGY
The four basic components of an international strategy are distinctive competence,
scope of operations, resource deployment, and synergy.
Distinctive Competence
• Distinctive competence answers the question, “What do we do exceptionally well,
especially as compared to our competitors?” A firm then tries to build a sustainable
competitive advantage (an advantage over its competitors that can be maintained
over time) based on its distinctive competence. A firm may have the same distinctive
Scope of Operations
• The scope of operations answers the question, “Where are we going to conduct
Resource Deployment
• Resource deployment answers the question, “Given that we are going to compete
Synergy
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DEVELOPING INTERNATIONAL STRATEGIES
• International strategic management is usually carried out in two broad stages:
strategy formulation and strategy implementation. During the strategy formulation
stage, the firm establishes its goals and the strategic plan that will lead to the
Mission Statement
• A mission statement attempts to clarify an organization’s values, purposes, and
directions. It may be used as a starting point in the strategic planning process or it
may be developed after the process is finished. Mission statements may specify
Teaching Note:
Instructors may want to ask students to compare and contrast the
mission statements of several domestic and international companies.
Mission statements can usually be obtained from a company’s annual report or their
Web site.
Environmental Scanning and the SWOT Analysis
• The second step in the strategy development process is an assessment of the firm’s
strengths, weaknesses, opportunities, and threats (SWOT analysis). Environmental
scanning (the systematic collection of data about all elements of the firm’s internal
and external environments) is used to identify a firm’s SWOT.
• Firms using environmental scanning to collect information about opportunities and
threats facing the firm obtain data about economic, financial, political, legal, and
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Strategic Goals
• Strategic goals are the major objectives the firm wants to accomplish through
pursuing a particular course of action. They should be measurable, feasible, and
time-limited. The text provides examples of how Disney set goals for its European
operations.
Tactics
• Tactics (specific tactical goals and plans) involve middle managers and focus on the
Control Framework
• A control framework is the managerial and organizational process used to keep the
LEVELS OF INTERNATIONAL STRATEGY
Most companies develop strategies for three distinct levels within the organization:
corporate, business, and functional. These strategy levels are illustrated in Figure 11.4.
Corporate Strategy
E-WORLD
Nokia: No Longer King of the Hill
Nokia provides a case study of a firm failing to react to changes in the global market
place. During the early 1960’s, Nokia started as a manufacturer of pulp and paper, which
ultimately led to their investment in the Finnish Telecommunications Company in 1981.
By the end of 2007, Nokia became the world’s largest manufacturer of mobile phones.
That dominance came crashing when Apple introduced the I Phone in June 2007, and
even more with the introduction of the Android based phones. Their inability to identify
and react to the changes in the environment has resulted in their losing almost 25%
market share.
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1. The Single-Business Strategy
• The single-business strategy calls for a firm to rely on a single business,
2. Related Diversification
• The most common corporate strategy, related diversification, calls for the firm
to operate in several different, but related businesses, industries, or markets at
the same time. A firm employing this type of strategy can leverage a distinctive
3. Unrelated Diversification
• A firm following a strategy of unrelated diversification operates in several
unrelated industries and markets. During the 1960s, when unrelated
diversification was the most popular investment strategy, firms became
conglomerates (comprised of unrelated businesses).
• There are several advantages to an unrelated diversification strategy. First, the
Business Strategy
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• Business strategy focuses on each line of business within an organization and
answers the question, “How should we compete in each market we have chosen to
enter?” Firms that follow a diversification strategy (either related or unrelated)
1. Differentiation
• The most common strategy is differentiation, whereby a firm attempts to
2. Overall Cost Leadership
• A firm following a strategy of overall cost leadership focuses on achieving
3. Focus
• A focus strategy calls for a firm to target specific types of products for certain
Functional Strategies
• Functional strategy answers the question, “How will we manage the functions of
finance, marketing, operations, human resources, and research and development in
ways consistent with our international corporate and business strategies?”
CHAPTER REVIEW
1. What is international strategic management?
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2. What are the three sources of competitive advantage available to international businesses
that are not available to purely domestic businesses?
3. Why is it difficult for firms to exploit these three competitive advantages simultaneously?
It is difficult to exploit the three competitive advantages simultaneously because each
advantage requires a different strategic perspective. For example, to exploit global
4. What are the four basic philosophies that guide strategic management in most MNCs?
5. How do international strategy formulation and international strategy implementation differ?
6. What are the steps in international strategy formulation? Are these likely to vary among
firms?
7. Identify the four components of an international strategy.
The four components of an international strategy are scope of operations, resource
deployment, distinctive competence, and synergy. Defining the scope of operations
8. Describe the role and importance of distinctive competence in international strategy
formulation.
Distinctive competence is the first component of international strategy, and answers the
question, “What do we do exceptionally well, compared to our competitors?” It is thought to
9. What are the three levels of international strategy? Why is it important to distinguish among
the levels?
10. Identify and distinguish among the three common approaches to corporate strategy.
The three common approaches to corporate strategy are single business, related
11. Identify and distinguish among the three common approaches to business strategy.
The three basic forms of business strategy are differentiation, overall cost leadership, and
focus. A firm following a differentiation strategy tries to establish and maintain the image
12. What are the basic types of functional strategies most firms use? Is it likely that some firms
have different functional strategies?
The most common types of functional strategies include financial strategy, marketing
QUESTIONS FOR DISCUSSION
1. What are the basic differences between a domestic strategy and an international strategy?
2. Should the same managers be involved in both formulating and implementing international
strategy, or should each part of the process be handled by different managers? Why?
3. Successful implementation of the global and transnational approaches requires high levels
of coordination and rapid information flows between corporate headquarters and
subsidiaries. Accordingly, would you expect to find many companies adopting either of
these approaches in the nineteenth century? Prior to World War II? Prior to the advent of
personal computers?
4. Study mission statements from several international businesses. How do they differ, and
how are they similar?
5. How can a poor SWOT analysis affect strategic planning?
6. Why do relatively few international firms pursue a single-product strategy?
Companies that pursue a single-business strategy are more vulnerable to competition and
7. How are the components of international strategy (scope of operations, resource
deployment, distinctive competence, and synergy) likely to vary across different types of
corporate strategy (single-business, related diversification, and unrelated diversification)?
8. The new Disney theme park in Hong Kong opened in 2006. Develop a list of at least five
ways other units of the Disney Corporation could have helped promote and publicize the
park’s grand opening.
9. Is a firm with a corporate strategy of related diversification more or less likely than a firm with
a corporate strategy of unrelated diversification to use the same business strategy for all
SBUs? Why or why not?
10. Identify products you use regularly that are made by international firms that use the three
different business strategies.
Responses to this question will vary according to the products and companies chosen by
11. Related and unrelated diversification represent extremes on a continuum. Discuss why a
firm might want to take a mid-range approach to diversification, as opposed to being purely
one or the other.
12. What are some of the issues a firm might need to address if it decides to change its
corporate or business strategy? For example, how would an MNC go about changing from
a strategy of related diversification to a strategy of unrelated diversification?
There are a wealth of issues to consider when changing strategy. For example, a firm that
BUILDING GLOBAL SKILLS
Essence of the exercise
This exercise is designed to provide students with a greater understanding of the steps involved
in assessing the market potential of a foreign country. The exercise requires students to
explore the potential for four unrelated products in several different marketplaces.
Answers to the follow-up questions:
1. Characterize the current business strategies the company appears to be following with each
of its four existing businesses.
2. Evaluate the extent to which there are any bases of relatedness among any of the four
existing businesses.
3. Using the criterion your group prefers, select any single business and assume that you will
recommend that it be kept and the other three sold.
4. Identify existing competitors for the business you chose to keep, including both domestic
and international firms.
5. Identify three other countries where there might be potential for business expansion.
Explain why.
Responses to this question will vary depending on which line of business a group has
6. Think of at least two other businesses that are related to the business you will keep and
which might be targets for acquisition.
As in the previous question, responses to this will vary depending on which area students
Other Applications
This exercise requires students to identify various pieces of information and make
CLOSING CASE
The House of Tata
The closing case explains the activities of the Mumbai based Tata group. It is a diversified
conglomerate that is committed to improving the quality of life of the communities they serve,
which is accomplished by striving for leadership and global competition in the business sectors
in which they operate.
Key Points:
The Tata Group was founded in 1868, and currently the companies focuses on seven different
business segments.
It is a family owned conglomerate, however, it differs from other organizations because of their
strong social commitment to the communities they serve.
They strive to improved working onditions.by supporting health, education and scientific
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Case Questions
What advantages does the Tata Group fain from being a conglomerate?
Diversification results in the reduction of risk. A downturn suffered by one subsidiary, can be
counterbalanced by stability or expansion in another division. By being part of the Tata group.
What are “institutional voids”? Why might they encourage the conglomerate form of organization
in emerging markets?
Tata Motors provides an example of how “institutional voids” can be used to encourage the
conglomerate form of organization in an emerging market. Many companies, including auto
manufacturers are impacted by the quality of the roads and highways. An emerging market,
Many corporate takeovers involve the acquiring firm installing their own managers and slashing
the payrolls of the acquired firm. Why has Tata chosen to retain the existing management temas
of the foreign companies it has taken over?
The reasons for retaining existing management might include: lack of familiarity with the
The Tata Group has a strong commitment to high ethical standards and corporate social
responsibility. Does it gain any competitive advantages in the market place because of this
commitment?