Griffin and Pustay Third Edition

INTERNATIONAL
BUSINESS
A MANAGERIAL PERSPECTIVE

Chapter 10
International Strategic Management

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Prentice
Prentice
Hall ©Hall
2002©International
2002 International
Business
Business
3e 3e
 Chapter Objectives
After studying this chapter you should be able to:

• Characterize the challenges of international strategic

management.
• Assess the basic strategic alternatives available to firms.
• Distinguish and analyze the components of international
strategy.
• Describe the international strategic management
process.
• Identify and characterize the levels of international
strategies.

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 Global Mickey

• Tokyo Disneyland opened in 1984 and has been hugely

successful. Encouraged with the success of this venture, Disney
planned Euro Disney which would open outside Paris in 1992.
This time, unlike the project in Japan, Disney participated more
fully in the park’s ownership and its profits.
• Unfortunately for Disney, a recession swept through Europe just
as the park was opening. Disney also misjudged a number of
factors, including average length of stays, amount visitors would
spend on food, etc.
• Euro Disney was barely saved in 1994 by a costly financial
restructuring, and it has only been in the last few years that the
re-named Disneyland Paris has begun earning profits.

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 International Strategic
Management

International strategic management

is a comprehensive and ongoing
management planning process
aimed at formulating and
implementing strategies that enable
a firm to compete effectively
internationally.

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 International Strategies

• International strategies are comprehensive frameworks for

achieving a firm’s fundamental goals.
• A firm’s strategic planners must answer the same
fundamental questions:
– What products and/or services does the firm intend to
sell?
– Where and how will it make those products or services?
– Where and how will it sell them?
– Where and how will it acquire the necessary
resources?
– How does it expect to outperform its competitors?

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 International Strategies (cont.)

• International businesses have the ability

to exploit three sources of competitive
advantage unavailable to domestic
firms:
– Global efficiencies
– Multinational flexibility
– Worldwide learning

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 Strategic Alternatives

• Multinational corporations typically adopt one

of four strategic alternatives in their attempt to
balance the three goals of global efficiencies,
multinational flexibility, and worldwide
learning:
– Home replication strategy
– Multidomestic strategy
– Global strategy
– Transnational strategy

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 Home Replication Strategy

• In this approach, a firm utilizes the core

competency or firm-specific advantage
it developed at home as its main
competitive weapon in the foreign
markets that it enters. That is, it takes
what it does exceptionally well in its
home market and attempts to duplicate
it in foreign markets.
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 The Multidomestic Strategy

• A multidomestic corporation views itself

as a collection of relatively independent
operating subsidiaries, each of which
focuses on a specific domestic market.
In addition, each of these subsidiaries is
free to customize its products, its
marketing campaigns, and its
operations techniques to best meet the
needs of its local customers.
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 The Global Strategy

• A global corporation views the world as

a single marketplace and has as its
primary goal the creation of
standardized goods and services that
will address the needs of customers
worldwide. The global strategy is almost
the exact opposite of the multidomestic
strategy.
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 The Transnational Strategy

• The transnational corporation attempts

to combine the benefits of global scale
efficiencies, such as those pursued by a
global corporation, with the benefits and
advantages of local responsiveness,
which is the goal of a multidomestic
corporation.

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 Components of an
International Strategy

• Managers who engage in international

strategic planning need to address the
four basic components of strategy
development:
– Distinctive competence
– Scope of operations
– Resource deployment
– Synergy
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 Distinctive Competence

• Distinctive competence answers the

question “What do we do exceptionally
well, especially as compared to our
competitors?” A firm’s distinctive
competence may be cutting-edge
technology, efficient distribution
networks, superior organizational
practices, or well-respected brand
names.
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 Scope of Operations

• The scope of operations answers the

question “Where are we going to conduct
business?” Scope may be defined in terms of
geographical regions, such as countries,
regions within a country, and/or clusters of
countries. Or it may focus on market or
product niches within one or more regions,
such as the premium-quality market niche,
the low-cost market niche, or other
specialized market niches.

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 Resource Deployment

• Resource deployment answers the

question “Given that we are going to
compete in these markets, how will we
allocate our resources to them?” For
example, even though Disney will soon
have theme park operations in four
countries, the firm does not have an
equal resource commitment to each
market.
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 Synergy

• Synergy answers the question “How

can different elements of our business
benefit each other?” The goal of
synergy is to create a situation where
the whole is greater than the sum of the
parts.

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 Developing International
Strategies
• Firms generally carry out international
strategic management in two broad
stages:
– Strategy formulation
– Strategy implementation

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 Strategy Formulation

• In strategy formulation, the firm

establishes its goals and the strategic
plan that will lead to the achievement of
those goals. In international strategy
formulation, managers develop, refine,
and agree on which markets to enter (or
exit) and how best to compete in each.

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 Strategy Implementation

• In strategy implementation, the firm

develops the tactics for achieving the
formulated international strategies.
Disney’s decision to build Disneyland
Paris was part of strategy formulation.
But deciding which attractions to
include, when to open, and what to
charge for admission is part of strategy
implementation.
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 SWOT Analysis

A SWOT analysis consists of a

firm looking at its strengths,
weaknesses, opportunities, and
threats.

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 Strategic Goals

Strategic goals are the major

objectives the firm wants to accomplish
through pursuing a particular course of
action. By definition, they should be
measurable, feasible, and time-limited,
answering the questions “how much,
how, and by when?”

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 Control Framework

A control framework is the set

of managerial and
organizational processes that
keep the firm moving toward its
strategic goals.

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 Levels of International Strategy

• Given the complexities of international

strategic management, many
international businesses find it useful to
develop strategies for three distinct
levels within the organization:
– Corporate
– Business
– Functional
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 Corporate Strategy

• Corporate strategy attempts to define

the domain of businesses the firm
intends to operate. A firm might adopt
any of three forms of corporate strategy:
– Single business strategy
– Related diversification strategy
– Unrelated diversification strategy

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 Business Strategy

• Whereas corporate strategy deals with

the overall organization, business
strategy focuses on specific businesses,
subsidiaries, or operating units within
the firm. The three basic forms of
business strategy are:
– Differentiation
– Overall cost leadership
– Focus
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 Functional Strategy

• Functional strategies attempt to answer

the question “How will we manage the
functions of finance, marketing,
operations, human resources, and
research and development in ways
consistent with our international
corporate strategies?”

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 Common Functional Strategies

• Some common functional strategies

are:
– Financial strategy
– Marketing strategy
– Operations strategy
– Human resource strategy
– Research and development strategy

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 Chapter Review

• International strategic management is a

comprehensive and ongoing management planning
process aimed at formulating and implementing
strategies that enable a firm to compete effectively in
different markets.
• Firms participating in international business usually
adopt one of four strategic alternatives: the home
replication strategy, the multidomestic strategy, the
global strategy, or the transnational strategy.
• A well-conceived strategy has four essential
components: distinctive competence, scope of
operations, resource deployment, and synergy.

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 Chapter Review (cont.)

• International strategy formulation is the

process of creating a firm’s international
strategies. There are three steps involved:
– Develop a mission statement that specifies its
values, purpose and direction.
– Thoroughly analyze its strengths and weaknesses,
as well as the opportunities and threats that exist
in its environment.
– Set strategic goals, outline tactical goals and
plans, and develop a control framework.

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 Chapter Review (conc.)

• Most firms develop strategy at three

levels:
– Corporate strategy
– Business strategy
– Functional strategy

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