C H A P T E R 8
Multinational strategy
Chapter objectives
2. Explain how strategy is formulated, giving particular emphasis to external and internal
environmental assessment.
3. Discuss the ways in which MNEs control and evaluate their strategies.
Chapter summary
1. The firm-specific advantages (FSA) and country-specific advantages (CSA) framework of
Chapter 2 is related to the special nature of strategic management as it applies to
2. Strategic planning is the process of determining an organizations basic mission and long-
term objectives and then implementing a plan of action for attaining these goals. In carrying
3. The international strategic planning process involves three major steps: strategy
formulation, strategy implementation and the control and evaluation of the process. Strategy
formulation entails the evaluation of the enterprises environment and the identification of
4. Strategy implementation is the process of attaining predetermined goals by properly
executing the formulated strategy. Three of the most important areas of consideration are
5. The control and evaluation process involves an examination of the MNEs performance for
the purpose of determining how well the organization has done and for deciding what action
now needs to be taken. Some of the most common measures include return on investment
(ROI), sales growth, market share, costs, new product development, host-country relations
and overall management performance.
Chapter outline
Introduction
Strategic orientations
Strategy formulation
Strategy implementation
Location
Ownership
Functional strategies
Control and evaluation
Common methods of measurement
Lecture outline
A. Introduction
1. The FSA and CSA framework of Chapter 2 can be used to illustrate the special nature
of strategic management as it applies to multinational enterprises. For example, cell 1 is
2. In contrast, cell 4 of the FSACSA matrix is a situation of strong FSAs where these are
independent of CSAs. This cell can best be described by the RBV of strategy. The core
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3. Obviously, cell 3 of the FSACSA matrix is a most intriguing one. This is where
country and firm effects are combined, requiring the integration of firm and country
4. Strategic planning is the process of evaluating an enterprises environment and internal
strengths, then identifying both long- and short-range objectives and implementing a
5. Without a strategic plan, these enterprises would have great difficulty in planning,
B. Strategic orientations
1. An MNE with an ethnocentric predisposition relies on the values and interests of the
parent company in formulating and implementing the strategic plan. Primary emphasis
2. An MNE with a polycentric predisposition tailors its strategic plan to meet the needs of
3. An MNE with a regiocentric predisposition is interested in both profit and public
4. An MNE with a geocentric predisposition views operations on a global basis. The
largest international corporations often use this approach. They produce global products
with local variations, and staff their offices with the best people they can find,
C. Strategy formulation
1. Strategy formulation is the process of evaluating an enterprises environment and
internal strengths. This typically begins with consideration of the external arena, since
2. The analysis of the external environment involves two activities: information gathering
and information assessment. These steps help answer two key questions: What is going
on in the external environment? How will these developments affect our company?
3. Information gathering is a critical phase of international strategic planning and it helps
answer the question: What is going on in the external environment? There are a number
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
4. Having gathered information on the competition and the industry, MNEs then assess the
data. One of the most common approaches is to make an overall assessment on the basis
of the five forces that determine industry competitiveness buyers, suppliers, potential
5. The internal environmental assessment helps pinpoint strengths and weaknesses of
6. The physical resources are the assets the MNE uses to carry out the strategic plan. Many
of these are reported on the balance sheet, as reflected by the firms cash, inventory,
machinery and equipment accounts. Location and disposition of these resources are also
important. Another important consideration is the degree of integration that exists
7. Personnel competencies are the abilities and talents of the people who work for an
8. A complementary approach to internal environmental assessment is an examination of
9. Analysis of the value chain can also help a company determine the type of strategy that
will be most effective. There are three generic strategies: cost, differentiation and focus.
Cost strategy relies on such approaches as aggressive construction of efficient facilities,
vigorous pursuit of cost reductions and overhead control, avoidance of marginal
10. In addition, each firm must determine its competitive scope, which is the breadth of its
11. There are two basic ways of examining the goals or objectives of international business
operations. One way is to review them on the basis of operating performance or
D. Strategy implementation
1. Strategy implementation is the process of attaining goals by using the organizational
2. Location is important for a number of reasons. First, local facilities often provide a cost
advantage to a producer. Second, residents may prefer locally produced products. Third,
3. Ownership of international operations has become an important issue in recent years.
Countries that want to remain economically strong must be able to attract international
4. An international joint venture is an agreement between two or more partners to own and
control an overseas business. There are a number of reasons for the rise in popularity of
5. A strategic partnership is an agreement between two or more competitive MNEs for the
6. Functional strategies are used to coordinate operations and to ensure that the plan is
carried out properly. While the specific functions that are key to the success of the MNE
vary, for the purposes of analysis they can be examined in terms of three major
considerations: marketing, manufacturing and finance. The marketing strategy is
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
E. Control and evaluation
1. The control and evaluation process involves an examination of the MNEs performance
for the purpose of determining (a) how well the organization has done and (b) what
2. Specific methods of measurement vary, depending on the nature of the MNE and the
goals it has established. However, in most cases, ROI, which is measured by dividing
3. Another measure is sales growth and/or market share. Units are given sales targets that
usually increase from year to year.
4. A third performance area is costs. The MNEs want to achieve increased sales and
6. The MNE host-country relations comprise another performance area that must be
evaluated. Overseas units have to work within the cultural and legal framework of the
7. Finally, management performance must be considered. In rating this criterion, an MNE
considers two types of measures: quantitative and qualitative. In the quantitative area, in
Answers to review and discussion questions
1. Define the term strategic planning.
Strategic planning is the process of evaluating an enterprises environment and internal
2. In what way can the following basic predispositions affect an MNEs strategic
planning: ethnocentric, polycentric, regiocentric and geocentric?
An MNE with an ethnocentric predisposition relies on the values and interests of the parent
company in formulating and implementing the strategic plan. Primary emphasis is given to
profitability and the firm tries to run operations abroad the way they are run at home. An MNE
3. How will an MNE carry out an external environmental assessment? Identify and
describe the two major steps involved in this process.
In an external environmental assessment, an MNE gathers information and then assesses these
data. Information gathering focuses on answering the question: What is going on in the external
environment? There are a number of ways that MNEs go about conducting an environmental
4. Of what practical value is an understanding of the five-forces model presented in
Figure 8.1? How would an MNE use this information in the strategic planning
process?
5. In conducting an internal environmental assessment, why would an MNE want to
identify its physical resources and personnel competencies?
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6. What is a value chain? How can this chain be used in an internal environmental
assessment?
7. What are the three generic strategies? When would an MNE use each? Support your
answer with examples.
The three generic strategies are cost, differentiation and focus. A cost strategy is used when an
MNE wants to pursue an aggressive policy on efficient facilities, vigorous pursuit of cost
8. What are some typical MNE goals? Identify and briefly describe four major types.
9. One of the most important considerations when implementing a strategy is that of
location. What does this statement mean?
This statement means that location is important because of the role it plays in carrying out
10. When are MNEs likely to use an international joint venture? When would they opt for
a strategic partnership? Defend your answer.
The MNEs are likely to use an international joint venture when (a) the government encourages
11. Functional strategies are used to coordinate operations and ensure that the plan is
carried out properly. What are some of the most common types of functional
strategies? Identify and describe three.
12. How do MNEs control and evaluate their operations? Describe the basic process. Then
discuss some of the common methods of measurement.
The basic control process consists of five steps: (a) identifying the goals and other endpoints to
Answers to real cases
Mountain Equipment Co-op: a small business
1. How does the Mountain Equipment Co-op use value chain analysis to increase both its
membership and its revenues?
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2. What is the co-ops generic strategy? Describe it.
3. How does MEC measure its performance? What are two criteria it uses to evaluate
how well it is doing?
The co-op evaluates its performance in a number of areas. First is member satisfaction, which
Benetton
1. Is Benetton a multinational enterprise?
2. What are the country-specific factors that have boosted Benettons success?
3. What are Benettons firm-specific advantages?