Management: Strategy Formulation and Implementation
Management: Strategy Formulation and Implementation
Management: Strategy Formulation and Implementation
Chapter 8
Strategy Formulation
and Implementation
International Management Ninth Edition Luthans | Doh
Strategy Formulation
and Implementation
• The specific objectives of this chapter are to
1. DISCUSS the meaning, needs, benefits, and approaches of the
strategic planning process for today’s MNCs.
2. UNDERSTAND the tension between pressures for global integration
and national responsiveness and the four basic options for
international strategy.
3. IDENTIFY the basic steps in strategic planning, including
environmental scanning, internal resource analysis of the MNC’s
strengths and weaknesses, and goal formulation.
4. DESCRIBE how an MNC implements the strategic plan, such as how
it chooses a site for overseas operations.
5. REVIEW the three major functions of marketing, production, and
finance that are used in implementing a strategic plan.
6. EXPLAIN specialized strategies appropriate for emerging markets
and international new ventures.
International Management Ninth Edition Luthans | Doh
Strategic Management
• Strategic Management
– The process of determining an organization’s basic
mission and long-term objectives and then
implementing a plan of action for pursuing the
mission and attaining these objectives.
• Corporations need strategic management in
order to keep track of their increasingly
diversified operations in a continuously
changing international environment.
International Management Ninth Edition Luthans | Doh
Approaches to Formulating
and Implementing Strategy
1. Economic Imperative
2. Political Imperative
3. Quality Imperative
4. Administrative Coordination
International Management Ninth Edition Luthans | Doh
Approaches to Formulating
and Implementing Strategy
Economic Imperative
• Economic imperative
– Worldwide strategy based on cost leadership,
differentiation, and segmentation
• Often products sold by MNCs have a large portion of
value added in upstream activities of the industry’s
value chain.
– Research and development
– Manufacturing
– Distribution
• Strategy is also used when the product is regarded as
generic and therefore does not have to be sold based
on name brand or support service.
International Management Ninth Edition Luthans | Doh
Approaches to Formulating
and Implementing Strategy
Political Imperative
• Political imperative
– Strategy formulation and implementation utilizing
strategies that are country-responsive and designed to
protect local market niches.
• Success of product or service depends on:
– Marketing
– Sales
– Service
• These MNCs often use country-centered or multi-
domestic strategy.
International Management Ninth Edition Luthans | Doh
Approaches to Formulating
and Implementing Strategy
Quality Imperative
• Quality imperative
• Takes two interdependent paths:
1. A change in attitudes and a raising of
expectations for service quality
2. The implementation of management practices
designed to make quality improvement an
ongoing process.
• TQM Total Quality Management
International Management Ninth Edition Luthans | Doh
Approaches to Formulating
and Implementing Strategy
• Administrative Coordination
– MNC makes strategic decisions based on the merits of
the individual situation rather than using
a predetermined economic or political strategy.
– Used when rapid, flexible decision making is needed
to close the sale
• Least common approach to formulation and
implementation of strategy
• Many large MNCs work to combine all four of the
approaches to strategic planning.
International Management Ninth Edition Luthans | Doh
Strategy Implementation
• Strategy Implementation
– Provides goods and services in accord with plan of
action
– Plan often will have overall philosophy or
guidelines that direct the process.
Location Considerations
Entry and ownership strategy
The Role of the Functional Areas
International Management Ninth Edition Luthans | Doh
Strategy Implementation
Location Considerations
• Three primary considerations
1. The country
2. The specific locale within the chosen country
3. Frontier Markets
• The Country
– Traditionally MNCs invest in highly industrialized countries
that offer the largest markets for goods and services.
• Developing countries like Mexico are becoming more attractive.
– The amount of government control and restrictions is a
factor.
– Specific benefits offered by host countries include low tax
rates, low/no interest loans, subsidies, but this trend is
changing.
International Management Ninth Edition Luthans | Doh
Strategy Implementation
Location Considerations
• Local Issues
– Once the country has been selected, the firm must
choose a specific locale.
– Important factors that influence this choice
• Access to markets
• Proximity to competitors
• Availability of transportation and electric power
• Desirability of location for employees coming in from
outside
International Management Ninth Edition Luthans | Doh
Strategy Implementation
Location Considerations
• Frontier Markets
– Also called pre-emerging markets; a unique subset
of emerging economies
– Offer potentially high rewards, but with high risk
– Often located in Africa and Asia
– Potential strategy: joint venture with a local
company with cultural knowledge of the market
– Page 309 (figure: 8.2)
International Management Ninth Edition Luthans | Doh
Strategy Implementation
The Role of the Functional Areas
• Marketing
– What works in one market may not work in
another
– Marketing may be dictated by the overall strategic
plan
– Marketing strategy involves the four “Ps”
• Product
• Price
• Promotion
• Place
International Management Ninth Edition Luthans | Doh
Strategy Implementation
The Role of the Functional Areas
• Production
– When exporting goods to foreign markets, production
has usually been handled through domestic
operations.
– More recently MNCs have found that whether they
export or produce goods locally in the host country,
consideration of worldwide production is important.
– Recent trend has been away from a multi-domestic
approach and toward a global coordination of
operations.
– If product labor-intensive, the trend is to farm out the
product to low-cost sites (e.g., Mexico).
International Management Ninth Edition Luthans | Doh
Strategy Implementation
The Role of the Functional Areas
• Finance
– Transferring funds from one place in the world to
another, or borrowing funds in international
money markets, is often less expensive than
relying on local sources.
– Issues include
• Reevaluation of currencies
• Volatile monetary exchange rates
International Management Ninth Edition Luthans | Doh
Specialized Strategies
• Some circumstances may require specialized
strategies:
– Strategies for developing and emerging markets
– Strategies for international entrepreneurship and
new ventures
International Management Ninth Edition Luthans | Doh
Specialized Strategies
Strategies for Emerging Markets
• Emerging markets will compose more than half of
global economic output by midcentury.
– “BRICS” economies: Brazil, Russia, India, South Africa,
and China
• Emerging markets present exceptional risks due
to political and economic volatility. These risks
show up in:
– Corruption
– Failure to enforce contracts
– Red tape and bureaucratic costs
– General uncertainty in legal and political environment
International Management Ninth Edition Luthans | Doh
Specialized Strategies
Strategies for Emerging Markets
Specialized Strategies
Strategies for Emerging Markets
Specialized Strategies
Entrepreneurship Strategy and New Ventures
Specialized Strategies
International Entrepreneurship
• International Entrepreneurship
– A combination of innovative, proactive, and risk-
seeking behavior that crosses national borders
and is intended to create value in organizations.
International Management Ninth Edition Luthans | Doh
Specialized Strategies
International New Ventures and “Born Global” Firms
• International New Ventures or Born-Global Firms
– Firms that engage in significant international activity a
short time after being established
– Successful born-global firms influence a distinctive
mix of orientations and strategies:
• Global technological competence
• Unique product development
• Quality focus
• Influence of foreign distributor competencies
– Truly born-global firms tend to survive longer than
other seemingly global companies.