9-1 mcgraw-hill/irwin© 2003 the mcgraw-hill companies, inc.,all rights reserved
TRANSCRIPT
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Part Three: International Strategic
Management
International Management,5th ed.
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International Management,
5th ed.
Hodgetts and Luthans
Chapter Nine
Strategic Planning
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DISCUSS the meaning, needs, benefits, approaches, and predispositions of the strategic planning process for today’s MNCs
IDENTIFY the basic steps in strategic planning, including environmental scanning, internal resource analysis of the MNC’s strengths and weaknesses, and goal formulation
DESCRIBE how an MNC implements the strategic plan, such as how it chooses a site for overseas operations
EXPLAIN how an MNC implements an ownership and/or entry strategy
REVIEW the three major functions of marketing, production, and finance that are used in implementing a strategic plan
Objectives of the Chapter
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International Strategic Planning
Strategic planning Process of determining an organization’s basic mission
and long-term objectives, then implementing a plan of action for attaining these goals
Process takes on added dimensions when companies go international
Growing Need for Strategic Planning MNC must keep track of diversified operations Continually changing international environment FDI has grown faster than both trade and world gross domestic
product Benefits of Strategic Planning
Evidence is mixed
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International Strategic Planning (cont.)
Approaches to Formulating and Implementing Strategy Economic Imperative
Worldwide strategy based on cost leadership, differentiation, and segmentation
Political Imperative Strategic formulation and implementation utilizing strategies
that are country-responsive and designed to protect local market niches
Quality Imperative Strategic formulation and implementation utilizing strategies of
total quality management to meet or exceed customers’ expectations and continuously improve products and/or services
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International Strategic Planning (cont.)
Approaches to Formulating and Implementing Strategy (cont.) Administrative Coordination
Strategic formulation and implementation in which the MNC makes strategic decisions based on the merits of the individual situation rather than using a predetermined economically or politically driven strategy
Large MNCs try to combine the economic, political, quality, and administrative approaches to strategic planning
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International Strategic Planning (cont.)
Strategic Predispositions Ethnocentric predisposition
Nationalistic philosophy of management whereby the values of the parent company guide the strategic decisions
Polycentric predisposition Philosophy of management whereby strategic decisions are
tailored to the cultures of the countries where the MNC operates
Regiocentric predisposition Philosophy of management whereby the firm tries to blend its
own interests with those of its subsidiaries on a regional basis Geocentric predisposition
Philosophy of management whereby the company tries to integrate a global systems approach to decision making
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Figure 9-1Basic Elements of Strategic Planning for
International Management
External Environmental Scanningfor MNC Opportunities and Threats
Internal Resource Analysis ofMNC strengths and weaknesses
Strategic PlanningGOALS
IMPLEMENTATION
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Basic Steps in Formulating Strategy
Environmental Scanning Process of providing management with accurate
forecasts of trends related to external changes in geographic areas where the firm currently is doing business and/or is considering setting up operations
Internal Resource Analysis Helps a firm to evaluate its current managerial,
technical, material, and financial strengths and weaknesses
Key factor for success (KFS) Factor necessary to effectively compete in a market niche Must have people and resources to develop and sustain the
necessary KFSs
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Table 9-2 Areas for Formulation of MNC Goals
Profitability
Level of profits Return on assets, investment, equity, salesYearly profit growth Yearly earnings per share growth
Marketing
Total sales volume Market share - worldwide, region, countryGrowth in sales volume Growth in market shareIntegration of country markets for marketing efficiency and effectiveness
Operations
Ratio of foreign to domestic production volume Quality and cost controlEconomies of scale via international production integrationIntroduction of cost-efficient production methods
Human Resources
Recruitment and selection Development of managers with global orientationCompensation and benefits Management development of host-country nationals
Finance
Taxation - minimizing tax burden globally Optimum capital structureForeign exchange management - minimizing losses from foreign fluctuationsFinancing of foreign affiliates - retained earnings or local borrowing
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Figure 9-2 Preferred Strategies for Global Expansion:
Developed Markets
North America
Western Europe
Japan
Australia/New Zealand
Alliance Joint ventureMergers/acquisitions
Expandfacilities
Newfacilities
0 20 40 60 80 100% of respondents
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Figure 9-2 Preferred Strategies for Global Expansion:
Developed Markets
North America
Western Europe
Japan
Australia/New Zealand
Alliance Joint ventureMergers/acquisitions
Expandfacilities
Newfacilities
0 20 40 60 80 100% of respondents
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0 20 40 60 80 100
Figure 9-2 Preferred Strategies for Global Expansion:
Emerging Markets
China
Southeast Asia
Other East Asia
India/Pakistan
Brazil
Mexico
Other Latin America
Middle East
North Africa
Eastern Europe
Former Soviet Union
Alliance Joint ventureMergers/acquisitions
Expandfacilities
Newfacilities
% of respondents
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Strategy Implementation
Process of providing goods and services in accord with a plan of action
Location Consideration for Implementation The Country
Industrialized countries are the recipients of most investments by MNCs
Offer the largest markets for goods and services May have legal restrictions on imports that encourage a local
presence
Local Issues Access to markets Proximity to competitors Availability of transportation and utilities Nature of of the workforce Cost of doing business
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Strategy Implementation (cont.)
Ownership and Entry Consideration for Implementation Wholly Owned Subsidiary
Overseas operation that is totally owned and controlled by an MNC
Increasingly acquiring subsidiaries through merger or acquisition
Provides MNC with complete control Joint Venture
Agreement in which two or more partners own and control an overseas business
Nonequity venture - one group provides service to another Equity joint venture - involves financial investment
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Advantages of Joint Ventures
JointVentures
Improvementof efficiency
Access toknowledge
Collusion orrestriction ofcompetition
Politicalfactors
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Strategy Implementation (cont.)
Ownership and Entry Consideration for Implementation (cont.) Licensing
Agreement that allows one party to use an industrial property right in exchange for payment to the other party
Used under a number of common conditions Franchising
Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee
Export/Import Useful for firms wanting to begin international expansion with
a minimum investment
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Strategy Implementation (cont.)
Role of the Functional Areas in Implementation Marketing
Strategy implementation must be determined on a country-by-country basis
Built around the “four Ps” Product, price, promotion and place
Usually dominates strategy implementation
Production Consideration of worldwide production is important Multidomestic company
Firm that operates production plants in different countries but makes no attempt to integrate overall operations
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Strategy Implementation (cont.)
Role of the Functional Areas in Implementation (cont.) Finance
Strategy implementation developed at the home office and carried out by the overseas affiliates
Transferring funds from one place to another, or borrowing funds in the international money markets, often is less expensive than relying on local sources
Must be concerned about volatile monetary exchange rates