Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

Introduction

Strategic planning:
The process of
 evaluating the enterprise’s environment
 its internal strengths
 then identifying long-and- short range
activities
 implementing plan of action for attaining
these goals
 MNEs make adjustments in dealing with
competitive situations
 Either redirect effort, or exploit new areas of
opportunities

Strategic orientations
Predispositions help determine the specific
decisions the firm will implement; there are four
predispositions
1. Ethnocentric predisposition: the
tendency of a manager or
multinational company to rely on the
values and interests of the parent
company in formulating and
implementing the strategic plan
2. Polycentric predisposition: the
tendency of a multinational to tailor its
strategic plan to meet the needs of the
local culture
3. Egocentric predisposition: the
tendency of a multinational to use a
strategy that addresses both local and
regional needs
4. Geocentric predisposition: the
tendency of a multinational to
construct strategic plan with a global
view of operations
(Good Example) Arthur Andersen, accentor, and
McKinsey

Strategy formulation
Strategy formulation: the process of evaluating the
enterprise’s environment and its internal strengths

External environmental assessment

International business 1
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

Involves two activities

1. Information gathering
2. information assessment
These steps help to answer two questions
1. what is going on in the external environment
2. how will these developments affect our
company

Information gathering
Four of the most common methods
1. asking experts in the industry to discuss
industry trends and to make projection about
the future :
2. using historical industry trends to forecast
future developments;
3. asking knowledgeable managers to write
scenarios describing what they foresee for
the industry over the next two to three years;
and
4. Using computers to simulate the industry
environment and to generate likely future
development.
This information helps. MNEs to identify
competitor strengths and weaknesses and to target
areas for attack.

Information assessment
Having gathered information on to competition
and the industry, MNEs will then evaluate the data.
Make an overall assessment based on the five
forces that determine industry, competitiveness-
buyers, suppliers, and potential new entrants to the
industry, the availability of substitute goods and
services, and rivalry among the competitors.

Competitive intelligence: the gathering of external

information on competitors and the competitive
environment as part of the decision-making
process

Bargaining power of buyers

Examine the power of their buyers

Bargaining power of suppliers

An MNE will look at the industry’s suppliers to see
if it can gain a competitive advantage here. Roe

International business 2
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

example, if there are a number of suppliers in the

industry, the MNE may attempt to play them off
against each other in to get a lower price.

New entrants
Examine the likelihood of new firms entering the
industry and will try to determine the impact they
might have on the MNE. Two typical ways that
international MNEs attempt to reduce the threat of
new entrants are by
1. keeping costs low and consumer loyalty
high, and
2. Encouraging the government to limit foreign
business activity though regulation such as
duties, tariffs, quotas, and other protective
measures.
Threat of substitutes
Look at the availability of substitute goods services
and try to anticipate when such offerings will reach
the market. Of steps that the company will take to
offset this competitive force, including
1. lowering prices,
2. offering similar products, and
3. Increasing services to the customer.

Rivalry
Examine the rivalry that exists between itself and
the competition and seek to anticipate future
changes in this arrangement. Common strategies of
maintaining and/or increasing market strength
include
1. offering new goods and services,
2. increasing productivity and thus reducing
overall costs,
3. working to differentiate current goods and
services from those of the competition,
4. increasing overall quality of goods and
changes.

Internal environmental assessment

Helps to pinpoint MNE strengths and weaknesses.
Two specific areas
1. physical resources and personnel
competencies, and

International business 3
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

2. The way in which value chain analysis can be

used to bring these resources together in the
most synergistic and profitable manner.

Physical resources and personnel competencies

The physical resources are the assets the assets
that MNE will use to carry out the strategic plan
many of these are reported on the balance sheet as
reelected by the firm’s cash, inventory, machinery,
and equipment accounts.
Location can also affect cost.
Another important consideration is the degree of
integration that exists within the operating units of
the MNE large companies, in particular, tend to be
divided into strategic business units [SBUS].
SBUs are sometimes referred to as “business
within the business”.
Vertical integration, many large Japanese
manufacturing firms, in particular, have moved
toward vertical integration by purchasing
controlling interest in their suppliers. The objective
is to obtain control over the supply and thus ensure
that the materials or goods are delivered as needed.
Virtual integration, which is the ownership of the
core technologies and manufacturing capabilities
needed to produce outputs, while depending on
outsourcers to provide all other needed inputs.
Personnel competencies are the abilities and
talents of the people. To examine these because
they reflect many of the companies strengths and
weakness. For example, if an MNE has an
outstanding R&D department, it may be able to
develop high-quality, state-of-the-art products.
However, if the company has no sales arm, it will
sell the output to a firm that can handle the
marketing and distribution.

Strategic business units (SBUS): operating units

with their own strategic space; they produce and
sell goods and services to a market segment and
have a well-defined set of competitors
Vertical integration: the ownership of assists
involved in producing a good or service and
delivering it to the final customer

International business 4
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

Virtual integration: a networking strategy based on

cooperation within and across company company
boundaries

Value chain analysis

The primary activities in this chain include

1. inbound logistics such as receiving, storing,

materials handling, and warehouse activities;
2. operations in which inputs are put into final
product form by performing activities such as
machining, assembling, testing, and
packaging,
3. outbound logistics, which involve
distributing the finished product to the
customer<
4. marketing and sales, which are used to
encourage buyers to purchase the product:
5. Service for maintaining and enhancing the
value of the product after the sale through
activities such as repair, product adjustment,
training, and parts supply. The support
activities in the value chain consist of:
1. the firm’s infrastructure, which is
made up of the company’s general
management, planning, finance,
accounting \,legal, government
affairs, and quality management
areas:
2. human resource management, which
is made up of the selection,
3. technology in the form of knowledge,
research and development, and
procedures
That can result in improved goods
and services:
4. procurement, which involves the
purchasing of raw materials,
supplies, and similar goods.
Determine the type of strategy that will be most
effective. In all, there are three generic strategies:
cost, differentiation, and focus.

International business 5
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

1. Value chain: the way in which primary and

support activities are combined in providing
goods and increasing profit margins
2. cost strategy: a strategy that relies on low
price and is achieved though approaches
such as vigorous pursuit of cost reduction
and overhead-control, avoidance of marginal
customer accounts, and cost mineralization
in areas such as sales and advertising
3. Differentiation strategy: a strategy directed
toward creating something that is perceived
as being unique
4. Focus strategy: a strategy that concentrates
on a reticular buyer group and segments that
niche based on product line or geographic
market
Competitive scope: the breadth of a firm’s target
market within an industry

Overall success is found in their ability to manage

the flow of new products, so that the offerings
remain reasonably fresh without spending money
on excessive investment in updates or redesign.
That cannot get this aspect of the product cycle
correct have been falling behind.

Goal setting
The external and internal environmental analyses
will provide the MNE with the information needed
for setting foals.
There are two basic ways of examining the goals or
objectives of international business operations.
One is to review them based on operating
performance or functional area. Some of the major
goals will be related to profit ability, marketing,
production, finance, and human resources. A
second way is to examine theses goals by
geographic area or on an SBU basis
Then there will be accompanying functional goals
for marketing, production, and finance. If the MNE
has SBUs, each strategic business unit in these
geographic locales will have it s own list of goals

Cascading effect:
The MNE start out by setting a profitability goal for
the overall enterprise. Each geographic area or

International business 6
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

business unit will then be assigned a profitability

goal, which, if attained, will result in the MNE
reaching its overall desired profitability. The same
approach will be used in other key areas such as
marketing, production, and finance. Within each
unit, these objectives will then be further
subdivided so that every part of the organization
understands its objectives and everyone is working
toward the same overall goals

Strategy implementation
Strategy implementation: the process of attaining
goals by using the organizational structure to
execute the formulated strategy properly
Many areas of focus in this process. Three of the
most important are location, ownership decisions.
In addition, functional area implementation.

Location
Important for a number of reasons
 Local facilities often provide a cost advantage
to the producer.
 Particularly true when the raw materials ,
apart, or labor needed to produce the product
can be inexpensively obtained close to the
facility
 Residents prefer locally produced products
 Locations attractive because the local
government is encouraging investments
through various means such as low tax rates,
free land, subsidized energy and
transportation rates and low interest loans,
 Imported goods are subjected to tariffs,
quotas, or other governmental restrictions,
making local manufacture more desirable
Number of drawbacks associated with locating
operations overseas
 Unstable political climate , leave an MNE
vulnerable to low profits and bureaucratic red
tape
 Possibility of revolution or armed conflict
Ownership
Many Americans belief that the increase in foreign
owned businesses in the US is weakening the
economy. People in other countries have similar
feelings about US businesses there. In truth, they

International business 7
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

real issue of ownership is whether or not they

company is contributing to the overall economic
good of the country where it is doing business
Countries that want to remain economically strong
must be able to attract international investors who
will provide jobs that allow their workers to
increase their skills and build products that are
demanded on the world market
In accomplishing this objective, two approaches are
now in vogue; international joint ventures and
strategic alliances

International joint venture (IJV)

An agreement between two or more partners to own
and control an overseas business
IJVs in number of forms and number of
opportunities, which helps to explain some of the
reasons for rise in popularity of IJVs
One reason is government encouragement and
legislation that are designed to make it attractive for
foreign investors to bring in local partners
Second reason is the growing need for partners
who know the local economy, the culture, and the
political system and who can cut through red tape
Third reason is the desire by outside investors to
find local collaborates with whom they can team up
effectively
Failure:
The major reason is the desire for MNEs to control
the operation, which sometimes has resulted in
poor decision making and/or conflict with the local
partners. In general, joint ventures are difficult to
manage and are frequently unstable

Strategic alliance
Strategic alliance or partnership: an agreement
between two or more competitive multinational
enterprises for serving a global market
 Strategic partnerships are usually formed by
firms in the same line of businesses.

Functional strategies
Used to coordinate operations and to ensure that
the plan is carried out properly

International business 8
Alan M. Rugman, Richard M. Hodgetts
Dr Zain Yusufzai Multinational Strategy Chapter # 8 (page214-240).

Falls into six major areas: 1. marketing 2.

Manufacturing 3. Finance 4. Procurement 5.
Technology 6. Human resources
For purposes of analysis they can be examined in
terms of three major considerations: marketing,
manufacturing, and finance

Marketing

Manufacturing

Finance

Control and evaluation

Strategy formulation and implementation processes
are a prelude to control and evaluation. This
process involves an examination of the MNEs
performance for determining
1. how well the organization has done a
2. what actions should be taken in light of this
performance
Common methods of measurement
Return on investment (ROL): a percentage
determined by dividing net income before taxes by
total assets
Second measure lies in sales growth and / or
market share
Third measure is performance area is costs
Forth measure is product development
Finally management performance must be
measured. Rating this type MNE will consider two
types of measures; quantitative and qualitative

International business 9
Alan M. Rugman, Richard M. Hodgetts