1. business and industrial
2. business operations
3. business plans

Section Four
The Organizational Environment
by Ball, McCulloch, Frantz,
Geringer, and Minor
This chapter covers:
13
•International strategy
and competitive
advantage
•Steps in global
strategic planning
International Competitive
Strategy
•The purpose of
mission statements,
objectives and goals
•Global, multidomestic
and transnational
straties
•New directions in
strategic planning
•Industrial espionage
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
 Understand international strategy and competencies and
international competitive advantage
 Describe the steps in the global strategic planning process
 Understand the purpose of mission statements, objectives,
goals, and strategies
 Understand global, multidomestic, and transnational
strategies and when to use them
 Describe the new directions in strategic planning
 Describe the sources of competitive information
 Understand the importance of industrial espionage
13-2
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 and
activities of a company

13-3
International Strategy

The goal is to achieve and
maintain a unique and
valuable position both
within a nation and globally
 This position has been
termed competitive
advantage
 Competitive
advantage is the
ability for a firm to
have higher rates of
profits than its
competitors
13-4

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 to identify opportunities and
threats
Formulate strategies to handle them
 Stipulate how to finance implementation

Provides consistency of action
 Requires participants to consider ramifications
 Provides a thorough, systematic foundation for
making decisions

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Global Strategic Planning Process
 The process of strategic planning provides a formal
structure in which managers
 Analyze the company’s external environments
 Analyze the company’s internal environment
 Define the company’s business and mission
 Set corporate objectives
 Quantify goals
 Formulate strategies
 Make tactical plans
Global Planning Process



13-7
Same format as domestic
firm
 Variations in values of
uncontrollable forces
make more complex
Must know present values
of forces and where they are
headed
Must include domestic,
international, and foreign
environments
Analyze Corporate
Controllable Variables
 Situational analysis


Forecast
Value Chain Analysis
 Who are the target
customers?
 What value doe we
deliver?
 How will customer value
be created?
13-8



Knowledge as a Controllable
Corporate Resource
 Capabilities of employees
 Structures, systems and
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
corporation’s stakeholders what the company is and
where it is going
 The vision should be a vibrant and compelling
image of the organization’s purpose
 The mission statement typically defines the scope
of what the company does
13-9
Set Corporate Objectives


Objectives
 Direct the firm’s course of
action
 Maintain it within the
boundaries of the stated
mission
 Ensure its continuing
existence
Objectives should be
quantified as much as
possible
13-10
Formulate Competitive Strategies

Corporate Strategies

Action plans to enable
organizations to reach
their objectives

Generally, participants in
the strategic planning
process will formulate
alternative corporate
strategies, or action plans,
that seem plausible
13-11


In the international market
companies confront two
opposing forces
 Reduction of costs
 Adaptation to local
markets
As a consequence,
companies have basically
three strategies they can use
 Multidomestic
 Global
 Transnational
Global Strategy
Used when a company faces strong pressure for
reducing costs, and limited pressure to adapt
products
 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 and change to
meet customer needs and higher transportation
costs

13-12
Multidomestic Strategy





13-13
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
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
much more complex

13-14
Scenarios

Multiple, plausible stories about the future.
 Often, the “what if” questions raised reveal
weaknesses in present strategies
 Types of subjects for scenarios include
 large and sudden changes in sales (up or
down)
 sudden increases in the price of raw materials
 sudden tax increases
 a change in the political party in power
13-15
Types of Plans
Contingency Plans
 Worst and best case
scenarios
 Critical events
 Tactical Plans
 Also called
operational
 Spell out in detail
how objectives will
be reached
 Short-term

13-16
Strategic Plan Features
 Sales Forecasts and Budgets
 Sales Forecasts
 Provides management with an estimate of the
revenue to be received and the units to be sold
 Serve as a basis for planning in other areas
 Budgets
 During planning, budgets coordinate the
functions within the firm and provide
management with a detailed statement of
future operating results
13-17
Plan Implementation Facilitators

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
13-18

Procedures

Prescribe how certain
activities will be carried
out

Ensure uniform action on
the part of all corporate
members

Facilitate comparison
among operational units
Kinds of Strategic Plans
 Time Horizon
 Strategic plans may be classified as short-, medium-, or
long-term
 Actual length varies according to age of firm and
stability of market
 Level in the Organization
 Each organizational level will have its level of plan
 Each will be more specific than the level above
 Functional areas will have their own plans
13-19
Methods of Planning

Top-down planning

13-20
corporate headquarters
develops and provides
guidelines that include
 the definition of the
business
 the mission statement
 company objectives
 financial assumptions
 the content of the plan
 special issues


Advantage
 The home office should
be able to formulate
plans that ensure the
optimal corporatewide
use of the firm’s scarce
resources
Disadvantage
 Restricts initiative at the
lower levels and shows
insensitivity to local
conditions
Method of Planning
 Bottom-Up Planning
 Lowest operating levels

inform top management
what they expect to do
Total becomes firm’s goals
 Advantage
 People responsible for
attaining goals are
formulating goals
 Disadvantage
 No guarantee affiliates’
goals will coincide with
headquarters
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Methods of Planning
 Iterative Planning
 Repetition of bottom-up or top-down planning
process until all differences are reconciled
 Iterative planning is becoming more popular
 Especially in global companies that seek to
have a single global plan while operating in
many diverse foreign environments
13-22
New Directions in Planning
 Who Does the Planning  How Planning is Done
 Many firms have

introduced innovation to
the planning process
 Bringing in customers
and suppliers to have
firsthand experience
with the firm’s
markets
13-23

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
Analysis of Competitive Forces

Success in strategic planning
depends on



Quality of information
Interpretation of
information
Common practice to talk to
competitors’ customers and
distributors


13-25
To test competitors’
products
View competitors exhibits at
trade shows
Competitor Analysis
Industrial Espionage
 Some companies have resorted to spying on a
competitor to learn secrets about its strategy and
operations
 Today’s top level managers recognize that
 Increased competition has created a need for more
knowledge of competitor
 The firm should have a competitor intelligence
system (CIS)

13-25
Competitor Intelligence Systems

CIS can result in legal and ethical acquisition of
valuable information and allow the company
 Improved bidding success
 Better target marketing and sales efforts
 Identification of competitors’ expansion plans or
changes in strategy
 Improved understanding of competitors’
products and processes
13-26
Sources of Information

Within the Firm
 Sales representatives
 Librarians
 Technical and R&D
people

Suppliers/Customers
 May know in advance
about new products
 Purchasing agents can
ask suppliers

Published Material

Competitors’ employees





13-27
Technical journals
Databases
Internet
Industry reports
Public documents


Actual or past
Direct observation or physical
evidence



Plant tours
Reverse engineering
Trash hauler
International Business Challenges

13-28
Industrial Espionage
 Briefcases, laptops, hotel
rooms searched
 Key targets R&D,
customer lists, financial
data
 Technology makes theft
easier
 Government has passed
laws to attempt to help
 Companies try new
security systems
Benchmarking
Measuring your company against others
 Four types

Internal – comparing one operation in the firm with
another
 Competitive – comparing the firm’s operation with a
direct competitor
 Functional – comparing similar functions of firms in
your industry
 Generic – comparing operations in totally unrelated
industries

13-29