International Strategy Formulation

The Changing World Globalization is the buzzword!

Change in traditional approaches towards more innovative strategies

Firms forced to trade off between globalization and localization

Transformation is hindered by to anti-globalization protests but greatly facilitated by the Internet

Pressures towards Globalization Broad factors making global competition

possible Freer Trade

GATT, WTO agreements Creation of free trade zones, regional trading

blocks like EU, ASEAN Global financial services and capital markets

Growth seen in FDIs Growth of overseas venture capitalists and

trans-national banks

Pressures towards Globalization Broad factors making global competition

possible Advances in communications technology

Ease of organizational control The Internet

Facilitates ease of communication CRM, EDI systems are now in place in many

companies Internet exchanges link buyers and sellers

worldwide and have opened up new markets

Pressures towards Globalization (cont.) Industry Specific Factors

Universal customer needs Global customers

Many MNCs sell to other MNCs and need to keep up with the international expansion of the customers

Global competitors

Pressures towards Globalization (cont.) Industry Specific Factors

High investment intensity High investments required for R&D, advertising

due to increased competition When investment intensity is high, many

companies are eager to amortize expenses by selling products globally

Pressures for cost reduction Economies of scale and learning are important in

price-sensitive markets

Pressures towards Localization Country specific Factors

Trade barriers - Tariffs, subsidizing domestic production, voluntary export restrictions, competing technical standards

Cultural differences - Cultural and religious beliefs, purchasing power, weak enforcement of laws

Nationalism Anti-globalization activism

Pressures towards Localization (cont.) MNC-Specific Pressures

Organizational resistance to change Logistics limitations Management skills and competencies

Business StrategiesExhibit 8-1 Mapping Industries

Need for Local ResponsivenessLow High

HighSemiconductors

Watches

Civil Aircraft

Automobiles

Telecommunications

Aerospace

White Goods

Packaged Foods

Funeral HomesCement

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Global Industries

Multidomestic Industries

Regional Industries

Key Recommendations for Managing the Formulation Process Invest heavily in data collection

Use multiple data sources, tap external sources and develop internal sources to overcome suspect data

Determine the potential for critical scale economies

Patience

Key Recommendations for Managing the Formulation Process Rotate country managers more frequently to

help them develop a global vision CEO international work experience benefits

Be prepared to reassess your performance measurement system and reward system

Take a balanced approach