Copyright ©2011 Taylor & Francis Group, an informa business

Chapter 9

A GENERAL FRAMEWORK: STRATEGY, ENTREPRENEURSHIP AND INTERNATIONAL BUSINESS

Objectives…A Broad Value Proposition A Highly Generalizable Discipline Entrepreneurship 

Parallel ModelsNew Complexities 

International Business International StrategiesImplementation and Fit 

A Broad Value Proposition

How could a small firm like EAI serve such a diverse clientele and still be successful?

A Broad Value Proposition 

Even firms that are very different share some basic things in common.

At a fundamental level firms are far more similar than they are different.

All firms survive by creating value for their customers, over and above what those customers can find elsewhere.

This value leads to transactions, which translate into revenues and profits.

A Broad Value Proposition 

All firms share the imperative to create value and to translate that value into revenues and profits, either in the present or at some point in the future.

All firms gather resources and convert those resources to produce outputs in the form of goods and services.

Firms that do not fit their environments do not survive for long.

A Highly Generalizable Discipline 

The challenge of applying strategic management is complicated by the breadth and variety of the settings in which the discipline is practiced.

It is important to recognize that strategic management is a highly generalizable discipline, with a fundamental logic and framework that can be applied in some way to every firm, industry, and setting.

A Highly Generalizable Discipline 

Some basic commonalities:Concept of competitive advantage

Firms with a competitive advantage will perform better than firms with no advantage and firms with no advantage will not be successful.

Concept of bargaining powerAll else being equal, firms with great bargaining

power will perform better than those without it.

A Highly Generalizable Discipline 

To realize the full benefit of strategic management means understanding generalizability and learning to think strategically in every setting and across every type of firm.

The challenge is to understand what is similar and what is different, so as to take what works from the strategic management framework and apply it to the unique and particular setting of interest.

Entrepreneurship 

Parallel ModelsNew Complexities 

Entrepreneurship 

Entrepreneurship is the initiation, organization, and operation of a business venture, for the purpose of earning a profit.

Entrepreneurship and strategic management are closely related in that both are concerned with the whole enterprise and with firm level performance.

Parallel Models

OpportunityRecognition

FeasibilityAnalysis

Business Plan Development

Gathering Key

Resources

SecuringInvestment

LaunchingThe Venture

A General Model of the Entrepreneurial Process

New Complexities 

Liabilities of newness

Newness, in any endeavor, carries with it some unique problems related to unfamiliarity and the lack of example or precedent.

Entrepreneurs create new products and services or offer existing products and services in new places or in different ways.

Therefore, they often face greater uncertainty and ambiguity than others.

International Business 

The amount of international business transacted is growing rapidly. Fifty years ago, international trade was barely more than 1% of world GDP. By 2006, it represented nearly 30% and that number continues to grow.

International Business 

The North American Free Trade Agreement (NAFTA) created a free-trading block including Canada, Mexico, and the United States.

The Association of Southeast Asian Nations (ASEAN), is designed to leverage bargaining power and to facilitate trade and economic growth among ten Southeast Asian countries.

The World Trade Organization was created in 1995, for the purpose of liberalizing world trade. The WTO now has 153 members, 80% of the 192 nations recognized by the United Nations.

International Business Two things are clear:

First, the trend towards globalization of business is pervasive and ongoing.

The second implication is that international business will be an increasingly important and increasingly common concern for strategic managers.

While international business is specialized, technical, and complex, there are many issues that parallel the basic framework and logic of strategy. Understanding these common themes and leveraging the basic similarities can facilitate better management, with better performance as a result.

International Strategies

Competitive advantage derives from one of two basic sources: low transaction costs and differentiation.

This also applies in international settings; elasticity of demand, along with issues like product substitutability and bargaining power, still shapes strategy and competitive advantage.

In the international context, however, the scale and complexity of the market is much greater.

International Strategies

Thus, there are two distinct and generic strategies, leveraging the same principles but doing so in a way that is unique to the international context.

These two generic strategies are the global and the multi-domestic strategies. Both strategies reflect some basic realities about the international market and about how firms plans to compete in it.

International Strategies

Consider the global strategy of Vodafone.

It follows an economic logic that is very similar to the low cost strategy, leveraging things like efficiency, scale economy, and portability to offer products and services that appeal to elastic customers.

It does so by treating the world as a single, large, and seamless market where one product or product category can be adapted easily to suit all of the global demand.

International Strategies

Consider the multi-domestic strategy of Johnson & Johnson.

It follows an economic logic similar to a differentiation strategy, leveraging things like customization and customer responsiveness to offer products and services that appeal to inelastic customers.

It does so by treating the world as a series of different markets, each with its own priorities and preferences and each requiring local adaptations.

Implementation and Fit

Recall the McKinsey 7-S Model. How would the implementation of these two international strategies necessitate different organizational structures, staffs, and styles?

Summary

Entrepreneurship and International Business are examples of specialized areas where the general framework of strategic management can be applied.

In both cases, a better understanding of strategic management can enable better action and better performance.