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chapter thirteen

International Competitive Strategy

McGraw-Hill/Irwin International Business, 11/e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

Explain international strategy and

competencies and international competitive advantage

Describe the steps in the global strategic

planning process

Explain the purpose of mission statements,

objectives, goals, and strategies


Learning Objectives
Describe the methods of and new directions in
strategic planning

Explain home replication, multidomestic, regional,

global, and transnational strategies and when to use them

Describe the sources of competitive information

Understand the importance of industrial espionage


International Strategy
The way firms make choices about acquiring and using scarce resources in order to achieve their international objectives Involves decisions that deal with all the various functions, products and regional unit activities of a company


International Strategy

The goal is to achieve and maintain a unique and valuable position both within a nation and globally: competitive advantage
Competitive advantage is the ability of a company to have higher rates of profits than its competitors


Competitive Advantage
To create a sustainable competitive advantage, a company tries to develop skills that
Create value for customers Are rare Are difficult to imitate or substitute for Are organized in a way that the company can fully exploit


Global Strategic Planning

Provides a means for top management to
Identify opportunities and threats Formulate strategies to handle them Stipulate how to finance and manage the strategies implementation Provides consistency of action Provides a thorough, systematic foundation for making decisions


Global Strategic Planning Process

The process of strategic planning provides a formal structure in which managers
Analyze the companys external environments Analyze the companys internal environment Quantify goals Define the companys business and mission Set corporate objectives Formulate strategies Make tactical plans

Global Planning Process


Analyze Corporate Controllable Variables

Situational analysis
Forecast Value Chain Analysis Who are the target customers? What value do we deliver? How will customer value be created?
Figure 13.2


Figure 13.2 The Value Chain


Analyze Corporate Controllable Variables

Knowledge as a Controllable Corporate Resource
Capabilities of employees Structures, systems, organizational routines

Build knowledge database and transfer best practices Protect knowledge from competitors


Define the Corporate Business, Vision, and Mission Statements

These broad statements communicate to the corporations stakeholders what the company is and where it is going and the values that will guide the behavior of the organizations members
Mission statement A broad statement that defines the organizations purpose and scope


Define the Corporate Business, Vision, and Mission Statements

Vision Statement Description of the companys desired future position if it can acquire the necessary competencies and successfully implement its strategy Values Statement Clear and concise description of the fundamental values, beliefs, and priorities of the organizations members


Set Corporate Objectives

Direct the firms course of action Maintain it within the boundaries of the mission Ensure its continuing existence

In order to implement an effective strategy, it is important to quantify objectives


Formulate Competitive Strategies

Competitive Strategies
Action plans to enable organizations to reach their objectives

Generally, participants in the strategic planning process will formulate alternative competitive strategies along with action plans that seem plausible


Formulate Competitive Strategies

In the international market companies confront two opposing forces
Reduction of costs Adaptation to local markets

Basic strategies address these pressures

Home Replication Multidomestic Regional Global Transnational


Cost and Adaptation Pressures and Their Implications for International Strategies


Home Replication Strategy

Used when companies typically centralize product development functions in their home country
Then transferred to foreign markets in order to capture additional value Microsoft, McDonalds


Multidomestic Strategy
Used when there is strong pressure for adaptation to local market
Decision making decentralized to allow for quick change Increases cost structure Too much adaptation may take away from product Cost and complexity of coordination can be substantial Schneider Electric

Global Strategy
Used when a company faces strong pressure to reduce costs and limited pressure to adapt products for local markets
Strategy and decision making centralized Company offers standardized products and services Value chain activities in only one or a few areas Results in limited ability to adjust to meet customer needs and higher transportation costs Intel, Boeing

Transnational Strategy
Used when a company confronts pressures for both cost effectiveness and local adaptation
Company locations based on where most beneficial for each activity Upstream value chain activities will be more centralized Downstream activities will be more decentralized Achieving an optimal balance is challenging Strategic decisions, structures and systems will be complex


Multiple, plausible stories about the future
Often the what if questions reveal weaknesses in present strategies Types of subjects for scenarios include large and sudden changes in sales (up or down) sudden increases in price of raw materials sudden tax increases a change in the political party in power

Types of Plans
Contingency Plans
Plans for the best-or-worst-case scenarios or for critical events that could have a severe impact on the firm

Tactical Plans (Operational)

Spell out in detail how objectives will be reached Short-term


Strategic Plan Features

Sales Forecast and Budget
Sales Forecast

Provides management with an estimate of the revenue to be received and the units to be sold

During planning, budgets coordinate the functions within the firm and provide management with a detailed statement of future operating results 13-26

Plan Implementation Facilitators

Policies and Procedures Policies
Broad guidelines to assist lower-level managers in handling recurring problems Permit discretionary action and interpretation The object is to economize managerial time and promote consistency among the various operating units


Plan Implementation Facilitators

Prescribe how certain activities will be carried out Ensure uniform action on the part of all corporate members

Facilitate comparison among operational units


Performance Measures
Assess if the strategy and its implementation are proceeding successfully and what modifications may be needed
Measures of the companys success Financial, technological, and human resources Measures of the effectiveness Measures of the companys progress

Kinds of Strategic Plans

Time Horizon
Strategic plans may be classified as short, medium, or long term

Level in the Organization

Each organizational level will have its level of plan

Functional area


Methods of Planning

Top-down planning
Begins at the highest level in the organization and continues downward definition of the business mission statement company objectives financial assumptions content of the plan special issues

Methods of Planning
Bottom-Up Planning
Begins at the lowest level in the organization and continues upward

Iterative Planning
Repetition of the bottom-up or top-down planning process until all differences are reconciled


New Directions in Planning

Who Does the Planning?

Many firms have introduced innovation to the planning process

Bring in customers and suppliers who have firsthand experience with the firms markets


New Directions in Planning

How Planning is Done
Many firms have moved toward less structured formats and much shorter documents

Contents of the Plan

Top managers much more concerned with issues, strategies, and implementation


Summary Changes in the International Planning Process

Top management must assume more explicit strategic decision-making role, decide how things ought to be, not listen to analyses of how they are

The nature of planning must change from forecasting to creativity

Planning processes and tools that assume a future much like the past must be replaced by a mind-set obsessed with recognizing change and using it to build competitive advantage

Summary of Changes in International Planning Process

The planner must change from purveyor of incrementalism to crusader for action Strategic planning must be restored to core of line management responsibilities


Competitor Analysis
Competitor Analysis
Process in which principal competitors are identified and their objectives, strengths, weaknesses, and product lines are assessed

Industrial Espionage
Act of spying on a competitors to learn secrets about strategy and operations


Competitor Intelligence Systems

Procedure for gathering, analyzing, and disseminating information about competitors Benefits include ability to:
Improve bidding success Identify competitors key customers Identify plant or other facility expansion plans Improve understanding of competitors products and processes


Sources of Information
Within the Firm Sales representatives Librarians Technical and R&D people Published Material Technical journals Databases Internet Industry reports Public documents Suppliers/Customers Competitors Employees Direct Observation or Analysis of Physical Evidence Technical people Reverse engineering

A technique for measuring a firms performance against the performance of others



Four types
Internal: comparing one operation in the firm with another Competitive: comparing the firms operation with a direct competitor Functional: comparing similar functions of firms in your industry Generic: comparing operations in totally unrelated industries