Module Number: 9 of 10

Lesson Title/Topic: International Strategic Management

Week Number: 15 & 16
Intended Learning Outcomes: (specific and measurable, and learner-oriented)

At the end of this unit, the students should be able to:

1. Characterize the challenges of international strategic management.

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

Learning and Teaching Support Materials

1. Module
2. Google classroom
3. Other books
4. Other websites

Lecture Proper and Discussion

International Strategic Management

The Challenges of International Strategic Management

Disney’s managers, like those of other international businesses, use strategic management to
address these challenges. More specifically, 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. The process of
developing a particular international strategy is often referred to as strategic planning. Strategic
planning is usually the responsibility of top-level executives at corporate headquarters and senior
managers in domestic and foreign operating subsidiaries. Most large firms also have a permanent
planning staff to provide technical assistance for top managers as they develop strategies.
Disney’s planning staff, for example, gathered demographic and economic data that the firm’s
decision makers used to select the sites for its domestic and international theme parks.

International strategic management results in the development of various international

strategies, which are comprehensive frameworks for achieving a firm’s fundamental goals.
Conceptually, there are many similarities between developing a strategy for competing in a
single country and developing one for competing in multiple countries. In both cases, the firm’s
strategic planners must answer the same fundamental questions:

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● What products 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?

But developing an international strategy is far more complex than developing a domestic
one. Managers developing a strategy for a domestic firm must deal with one national
government, one currency, one accounting system, one political and legal system, and, usually, a
single language and a comparatively homogeneous culture. But managers responsible for
developing a strategy for an international firm must understand and deal with multiple
governments, multiple currencies, multiple accounting systems, multiple political systems,
multiple legal systems, and a variety of languages and cultures.

Moreover, managers in an international business must also coordinate the implementation of

their firm’s strategy among business units located in different parts of the world with different
time zones, different cultural contexts, and different economic conditions, as well as monitoring
and controlling their performance. But managers usually consider these complexities acceptable
trade-offs for the additional opportunities that come with global expansion. Indeed, international
businesses have the ability to exploit three sources of competitive advantage unavailable to
domestic firms.

 Global efficiencies. International firms can improve their efficiency through several means
not available to domestic firms. They can capture location efficiencies by locating their
facilities anywhere in the world that yields them the lowest production or distribution costs or
that best improves the quality of service they offer their customers. Production of athletic
shoes, for example, is labor intensive, and Nike, like many of its competitors, centers its
manufacturing in countries where labor costs are especially low. Similarly, by building
factories to serve more than one country, international firms may also lower their production
costs by capturing economies of scale.
 Multinational flexibility. As we discussed in Chapters 3 and 4, there are wide variations
in the political, economic, legal, and cultural environments of countries. Moreover, these
environments are constantly changing: New laws are passed, new governments are elected,
economic policies are changed, and new competitors may enter (or leave) the national
market. International businesses thus face the challenge of responding to these multiple
diverse and changing environments. But unlike domestic firms, which operate in and
respond to changes in the context of a single domestic environment, international businesses
may also respond to a change in one country by implementing a change in another country.
 Worldwide learning. The diverse operating environments of multinational
corporations (MNCs) may also contribute to organizational learning. Differences in
these operating
environments may cause the firm to operate differently in one country than another. An
astute firm may learn from these differences and transfer this learning to its operations
in other countries.

Unfortunately, it is difficult to exploit these three factors simultaneously. Global efficiencies

can be more easily obtained when a single unit of a firm is given worldwide responsibility
for the task at hand. BMW’s engineering staff at headquarters in Munich, for example, is
responsible for the research and development of the company’s new automobiles. By focusing
its R&D efforts at one location, BMW engineers designing new transmissions are better able to
coordinate their activities with their counterparts designing new engines. However, centralizing
control of its R&D operations also hinders the firm’s ability to customize its product to meet the
differing needs of customers in different countries. Consider the simple question of whether to
include cup holders in its cars. In designing cars to be driven safely at the prevailing high speeds
of Germany’s autobahn, the company’s engineers initially decided that cup holders were both
irrelevant and dangerous. Driving speeds in the United States, however, are much lower, and cup
holders are an important comfort feature in autos sold to U.S. consumers. Lengthy battles were
fought between BMW’s German engineers and its U.S. marketing managers over this seemingly
trivial issue. Only after a decade of argument did cup holders finally become a standard feature in
the firm’s automobiles sold in North America. And even then, in some BMW models the cup
holders were placed in front of the air conditioner vents, making it harder to keep beverages at
their desired temperature.

Strategic Alternatives

MNCs 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. In this approach, a firm uses 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.
 Multidomestic strategy. The second alternative available to international firms, 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 operational
techniques to best meet the needs of its local customers. The multidomestic approach
is particularly effective when there are clear differences among national markets; when
economies of scale for production, distribution, and marketing are low; and when the cost of
coordination between the parent corporation and its various foreign subsidiaries is high.
Because each subsidiary in a multidomestic corporation must be responsive to the local
market, the parent company usually delegates considerable power and authority to managers
of its subsidiaries in various host countries. MNCs operating in the years prior to World War
II often adopted this approach because of difficulties of controlling distant foreign
subsidiaries given the communication and transportation technologies of those times.
 Global Strategy . The third alternative philosophy available for international firms,.
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.
Whereas the multidomestic firm believes that its customers in every country are
fundamentally different and must be approached from that perspective, a global corporation
assumes that customers are fundamentally the same regardless of their nationalities. Thus,
the global corporation views the world market as a single entity as it develops, produces, and
sells its products. It tries to capture economies of scale in production and marketing by
concentrating its production activities in a handful of highly efficient factories and then
creating global advertising and marketing campaigns to sell those goods. Because the global
corporation must coordinate its worldwide production and marketing strategies, it usually
 concentrates power and decision-making responsibility at a central headquarters location.
 Transnational Strategy. The fourth approach available to international firms. 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. To do so, the transnational
corporation does not automatically centralize or decentralize authority. Rather, it carefully
assigns responsibility for various organizational tasks to that unit of the organization best able
to achieve the dual goals of efficiency and flexibility. A transnational corporation may choose
to centralize certain management functions and decision making, such as R&D and financial
operations, at corporate headquarters. Other management functions, such as human resource
management and marketing, however, may be decentralized, allowing managers of local
subsidiaries to customize their business activities to better respond to the local culture and
business environment.

The home replication strategy is often adopted by firms when both the pressures for
global integration and the need for local responsiveness are low, as the lower left-hand cell in
Figure 11.1 shows. Toys “R” Us, for example, has adopted this approach to internationalizing
its operations. It continues to use the marketing, procurement, and distribution techniques
developed in its U.S. retail outlets in its foreign stores as well. The company’s managers believe
that the firm’s path to success internationally is the same as it was domestically: build large,
warehouse-like stores; buy in volume; cut prices; and take market share from smaller, high-cost
toy retailers. Accordingly, they see little reason to adjust the firm’s basic domestic strategy as
they enter new international markets.

The multidomestic approach is often used when the need to respond to local conditions is high,
but the pressures for global integration are low. Many companies selling brand-name food
products have adopted this approach. Although not unmindful of the benefits of reducing
manufacturing costs, such marketing-driven companies as Kraft, Unilever, and Nestlé are more
concerned with meeting the specific needs of local customers, thereby ensuring that these
customers will continue to pay a premium price for the brand-name goods these companies sell.
Moreover, they often rely on local production facilities to ensure that local consumers will
readily find fresh, high-quality products on their supermarket shelves.
The global strategy is most appropriate when the pressures for global integration are high but the
need for local responsiveness is low. In such cases, the firm can focus on creating standardized
goods, marketing campaigns, distribution systems, and so forth. This strategy
has been adopted by many Japanese consumer electronics firms such as Sony and Matsushita,
which design their products with global markets in mind. Aside from minor adaptations for
differences in local electrical systems and recording formats, these firms’ digital cameras, TVs,
smartphones, and Blu-ray players are sold to consumers throughout the world with little need
for customization. Thus, these firms are free to seek global efficiencies by capturing economies
of scale in manufacturing and concentrating their production in countries offering low-cost
manufacturing facilities.

The transnational strategy is most appropriate when pressures for global integration and
local responsiveness are both high. The Ford Motor Company has been attempting to employ
this strategy. For example, Ford now has a single manager responsible for global engine and
transmission development. Other managers have similar responsibilities for product design and
development, production, and marketing. But each manager is also responsible for ensuring that
Ford products are tailored to meet local consumer tastes and preferences. For instance, Ford
products sold in the United Kingdom must have their steering wheels mounted on the right side
of the passenger compartment. Body styles may also need to be slightly altered in different
markets to be more appealing to local customer tastes.

Not addressed to this point has been the issue of worldwide learning. Worldwide learning
requires the transfer of information and experiences from the parent to each subsidiary, from
each subsidiary to the parent, and among subsidiaries. The home replication, multidomestic,
and global strategies are not explicitly designed, however, to accomplish such learning
transfer. The home replication strategy is predicated on the parent company’s transferring the
firm’s core competencies to its foreign subsidiaries. The multidomestic strategy decentralizes
power to the local subsidiaries so that they can respond easily to local conditions. The global
strategy centralizes decision making so that the firm can achieve global integration of its
activities.

Components of an International Strategy

After determining the overall international strategic philosophy of their firm, managers who
engage in international strategic planning then need to address the four basic components of
strategy development. These components are distinctive competence, scope of operations,
resource deployment, and synergy.

Distinctive Competence

Distinctive competence, the first component of international strategy, 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.
Scope of Operations

The second component, 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, 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. Because all firms have finite resources and because
markets differ in their relative attractiveness for various products, managers must decide which
markets are most attractive to their firm. Scope is, of course, tied to the firm’s distinctive
competence: If the firm possesses a distinctive competence only in certain regions or in specific
product lines, then its scope of operations will focus on those areas where the firm enjoys the
distinctive competence.

Resource Deployment

Resource deployment answers the question: “Given that we are going to compete in these
markets, how should we allocate our resources to them?” For example, even though Disney has
theme park operations in four countries, the firm does not have an equal resource commitment to
each market. Disney invested nothing in Tokyo Disneyland and limited its original investment in
Disneyland Paris to 49 percent of its equity and in Hong Kong to 43 percent. But it continues to
invest heavily in its U.S. theme park operations and in filmed entertainment.

Synergy

The fourth component of international strategy, synergy, answers the question: “How can
different elements of our business benefit each other?” The goal of synergy is to create a
situation in which the whole is greater than the sum of the parts. Disney has excelled at
generating synergy in the United States. People know the Disney characters from television, so
they plan vacations to Disney theme parks. At the parks they are bombarded with information
about the newest Disney movies, and they buy merchandise featuring Disney characters, which
encourage them to watch Disney characters on TV, starting the cycle all over again. However, as
noted previously, the firm has been more effective in capturing these synergies domestically than
internationally.

Developing International Strategies

Developing international strategies is not a one-dimensional process. Firms generally

carry out international strategic management in two broad stages, strategy formulation
and
strategy implementation. Simply put, strategy formulation is deciding what to do and strategy
implementation is actually doing it 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. Much of what we discuss in the rest of this
chapter and in the next two chapters primarily concerns international strategy formulation.

 In strategy implementation, the firm develops the tactics for achieving the formulated
international strategies. Disney’s decision to build Hong Kong Disneyland was part of
strategy formulation. But deciding which attractions to include, when to open, what to charge
for admission, and how to leverage its investment in the park to penetrate the TV, movie, and
character licensing markets in China is part of strategy implementation. Strategy
implementation is usually achieved via the organization’s design, the work of its employees,
and its control systems and processes.
Mission Statement

Most organizations begin the international strategic planning process by creating a mission
statement, which clarifies the organization’s purpose, values, and directions. The mission
statement is often used as a way of communicating with internal and external constituents and
stakeholders about the firm’s strategic direction. It may specify such factors as the firm’s target
customers and markets, principal products or services, geographical domain, core technologies,
concerns for survival, plans for growth and profitability, basic philosophy, and desired public
image.

Environmental Scanning and the SWOT Analysis

The second step in developing a strategy is conducting a SWOT analysis. SWOT is an acronym
for strengths, weaknesses, opportunities, and threats. A firm typically initiates its SWOT analysis
by performing an environmental scan, a systematic collection of data about all elements of the
firm’s external and internal environments, including markets, regulatory issues, competitors’
actions, production costs, and labor productivity.

When members of a planning staff scan the external environment, they try to identify both
opportunities (the O in SWOT) and threats (the T in SWOT) confronting the firm. They obtain
data about economic, financial, political, legal, social, and competitive changes in the various
markets the firm serves or might want to serve.

External environmental scanning also yields data about environmental threats to the firm, such as
shrinking markets, increasing competition, the potential for new government regulation, political
instability in key markets, and the development of new technologies that could make the firm’s
manufacturing facilities or product lines obsolete.

In conducting a SWOT analysis, a firm’s strategic managers must also assess the firm’s internal
environment, that is, its strengths and weaknesses (the S and W in SWOT). Organizational
strengths are skills, resources, and other advantages the firm possesses relative to its competitors.
Potential strengths, which form the basis of a firm’s distinctive competence, might include an
abundance of managerial talent, cutting-edge technology, well-known brand names, surplus cash,
a good public image, and strong market shares in key countries.

A firm also needs to acknowledge its organizational weaknesses. These weaknesses reflect
deficiencies or shortcomings in skills, resources, or other factors that hinder the firm’s
competitiveness. They may include poor distribution networks outside the home market, poor
labor relations, a lack of skilled international managers, or product development efforts that lag
behind competitors.

One technique for assessing a firm’s strengths and weaknesses is the value chain. Developed by
Harvard Business School Professor Michael Porter, the value chain is a breakdown of the firm
into its important activities—production, marketing, human resource management, and so forth
—to enable its strategists to identify its competitive advantages
and disadvantages.

Strategic Goals

With the mission statement and SWOT analysis as context, international strategic planning is
largely framed by the setting of 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?”)
Tactics

As shown in Figure 11.2, after a SWOT analysis has been performed and strategic goals
set, the next step in strategic planning is to develop specific tactical goals and plans, or
tactics. Tactics usually involve middle managers and focus on the details of implementing
the firm’s strategic goals. For example

Control Framework

The final aspect of strategy formulation is the development of a control framework, the set of
managerial and organizational processes that keep the firm moving toward its strategic goals.
For example, Disneyland Paris had a first-year attendance goal of 12 million visitors. When it
became apparent that this goal would not be met, the firm increased its advertising to help boost
attendance and temporarily closed one of its hotels to cut costs. Had attendance been running
ahead of the goal, the firm might have decreased advertising and extended its operating hours.
Each set of responses stems from the control framework established to keep the firm on course.

Levels of International Strategy

Given the complexities of international strategic management, many international businesses—

especially MNCs—find it useful to develop strategies for three distinct levels within the
organization. These levels of international strategy, illustrated in Figure 11.4, are corporate,
business, and functional.

Corporate Strategy

Corporate strategy attempts to define the domain of businesses in which the firm intends to
operate. Consider three Japanese electronics firms: Sony competes in the global market for
consumer electronics and entertainment but has not broadened its scope into home and kitchen
appliances. Archrival Panasonic spans all these industries, while Pioneer Corporation focuses
only on electronic audio and video products. Each firm has answered quite differently the
question of what constitutes its business domain. Their divergent answers reflect their differing
corporate strengths and weaknesses, as well as their differing assessments of the opportunities
and threats produced by the global economic and political environments. A firm might adopt
any of three forms of corporate strategy. These are called a single-business strategy, a related
diversification strategy, and an unrelated diversification strategy.

 The Single-Business Strategy The single-business strategy calls for a firm to rely on a
single business, product, or service for all its revenue. The most significant advantage of this
strategy is that the firm can concentrate all its resources and expertise on that one product or
service. However, this strategy also increases the firm’s vulnerability to its competition and
to changes in the external environment.
 Related Diversification. Related diversification, the most common corporate strategy, calls
for the firm to operate in several different but fundamentally related businesses, industries, or
markets at the same time. This strategy allows the firm to leverage a distinctive competence
in one market to strengthen its competitiveness in others. The goal of related diversification
and the basic relationship linking various operations are often defined in the firm’s mission
statement.
 Unrelated Diversification. A third corporate strategy international businesses may use is
unrelated diversification, whereby a firm operates in several unrelated industries and
markets.

Business Strategy

Whereas corporate strategy deals with the overall organization, business strategy focuses on
specific businesses, subsidiaries, or operating units within the firm. Business strategy seeks to
answer the question: “How should we compete in each market we have chosen to enter?”

Firms that pursue corporate strategies of related diversification or unrelated diversification

tend to bundle sets of businesses together into strategic business units (SBUs). In firms that
follow the related diversification strategy, the products and services of each SBU are somewhat
similar to each other.

By focusing on the competitive environment of each business or SBU, business strategy

helps the firm improve its distinctive competence for that business or unit. Once a firm selects
a business strategy for an SBU, it typically uses that strategy in all geographical markets the
SBU serves. The firm may develop a unique business strategy for each of its SBUs, or it may
pursue the same business strategy for all of them. The three basic forms of business strategy
are differentiation, overall cost leadership, and focus.

 Differentiation. Differentiation strategy is a commonly used business strategy. It attempts to

establish and maintain the image (either real or perceived) that the SBU’s products or
services are fundamentally unique from other products or services in the same market
segment. Many international businesses today are attempting to use quality as a
differentiating factor. If successful at establishing a high-quality image, they can charge
higher prices for their products or services.
 Overall Cost Leadership. The overall cost leadership strategy calls for a firm to focus on
achieving highly efficient operating procedures so that its costs are lower than its
competitors’. This allows it to sell its goods or services for lower prices. A successful overall
cost leadership strategy may result in lower levels of unit profitability due to lower prices but
higher total profitability because of increased sales volume.
 Focus. A focus strategy calls for a firm to target specific types of products for certain
customer groups or regions, such as a retailer specializing in maternity clothes or “big and
tall” clients. Doing this allows the firm to match the features of specific products to the needs
 of specific consumer groups. These groups might be characterized by geographical region,
ethnicity, purchasing power, tastes in fashion, or any other factor that influences their
purchasing patterns.

Functional Strategies

Functional strategies attempt to answer the question: “How will we manage the functions of
finance, marketing, operations, human resources, and R&D in ways consistent with our
international corporate and business strategies?”
 International financial strategy deals with such issues as the firm’s desired capital structure,
investment policies, foreign-exchange holdings, risk-reduction techniques, debt policies,
and
working-capital management. Typically, an international business develops a financial
strategy for the overall firm as well as for each SBU.
 International operations strategy deals with the creation of the firm’s products or services.
It guides decisions on such issues as sourcing, plant location, plant layout and design,
technology, and inventory management.
 International human resource strategy focuses on the people who work for an organization.
It guides decisions regarding how the firm will recruit, train, and evaluate employees and
what it will pay them, as well as how it will deal with labor relations.
 A firm’s international R&D strategy is concerned
with the magnitude and direction of the firm’s investment in creating new products and
developing new technologies.
The next steps in formulating international strategy determine which foreign markets to enter and
which to avoid. The firm’s managers must then decide how to enter the chosen markets.

Assessment: Discussion Questions

1. What is international strategic management?

2. What are the four basic philosophies that guide strategic management in most MNCs?
3. How do international strategy formulation and international strategy implementation
differ?
4. What are the steps in international strategy formulation? Are these likely to vary among
firms?
5. Identify the four components of an international strategy.
6. Describe the role and importance of distinctive competence in international strategy
formulation.
7. What are the three levels of international strategy? Why is it important to distinguish
among the levels?
8. Identify and distinguish among three common approaches to corporate strategy.
9. Identify and distinguish among three common approaches to business strategy.
10. What are the basic types of functional strategies most firms use? Is it likely that some
firms have different functional strategies?
Suggested Teaching-Learning Activities
 Article Critiques
 Inductive Reasoning

Assessment Tasks/Outputs
1) Answering workbook exercise
2) Quiz through google forms
3) Reflection paper

Readings and Other References

Griffin, R. W., & Pustay, M. W. (2015). International Business: A Managerial Perspective Eight
Edition. Texas: Pearson.
Retrieved from: www.freebookslides.com Hult, G. M., & Hill, C. W. (2019). International
Business: Competing in the Global Market. New York: McGraw-Hill Education.
Retrieved from: www.freebookslides.com