For any MNCs, there are strategies put
in place and most of you would have studied these briefly in some of the
courses. You also have looked at the Business environment and scanning that
MNCs carry out prior to carry out their international business, you have looked
at economic integrations, SWOT analysis etc. which should now help to
understand why we are discussing Global Strategy.
Vision
Statement
What is a Vision? “What do we want to
Create? Shared visions in organizations create a sense of commonality that
permeates the organization and gives coherence to diverse activities” Subba
Rao. (2012). the corporate vision has the potential power to focus the
collective energy of insiders and to give outsiders a better idea of what an
organization really is.
Mission
Statement
It is an enduring statement of purpose
that distinguishes one organization from other similar organizations. When
mission is defined as an enduring statement, it is telling us that the
corporation came into being for a specific purpose and this is anticipated to
be protected in the long run. A good mission statement should be very clear
from the start.
When you are looking at the global
environment, a mission statement has to focus on the objective of this global
mission. What is the objective and how do we protect this statement for the
long term benefit of the organization.
Policy
Policies are general statements or
understandings which guide our thinking and actions to make the right
decisions.
Strategy
Strategy according to Subba Rao, is a
unified, comprehensive and integrated plan that relates to the strategic
advantages of the firm to the challenges of the environment. It is designed to
ensure that the basic objectives of the enterprise are achieved through proper
execution by the organization.
Strategic
management
Strategic Management is concerned with
deciding on strategy and planning how that strategy is put into effect.
According to Samuel C. Certo and J Paul Peter, “Strategic Management is a
continuous, interactive cross functional process aimed at keeping an organization
as a whole appropriately matched to its environment.”
Strategic management are not the same
for a global company and a domestic company. Their strategies would be
distinctively differs from each other due to its difference and peculiarities.
Peculiarities
of Global Strategic Management
·
International strategic
management is concerned with the flow of goods and services across the
countries and deals with the Opportunities, Threats, Challenges and Risks in
various markets in the world.
·
Strategies of MNCs are
formulated by analysing the global environment. This may come about due to clustering
markets.
·
Global Strategic
Management looks at the impact of the present decision on the future. (Managers
have to assess impacts carefully).
·
Global strategic
management are action oriented therefore all managers are active players.
·
Global Strategic
Management is dynamic and changing due to the changing business environment
around the globe. (e.g. Microsoft).
·
Global Strategic
Management is mostly for long term.
·
Global Strategic
Management looks at all the environmental factors of all countries and the
different interaction between the different countries.
·
Global Strategic
Management studies the strategies and looks at the reaction of their
competitors in the different markets.
·
Global Strategic
Management process, integrates the domestic operations together with operations
in foreign countries.
·
Global Strategic
Management looks at the different business portfolios in different countries
and prioritize accordingly.
·
Global Strategic
Management designs organizational structures based on divisional geographical
structures.
·
Global Strategic
Management depends upon the cultural differences among countries, differences
in laws of the land, policies of the government, political environment.
·
Global Strategic
Management is more critical on control front mainly due to unique factors
influencing international business.
Global
Strategic Management Process
·
Value
creation – Long term profitability comes when
customers see value on products and services. Firm are able to charge higher
prices as compared to its competitors.
·
Strategic
Choices – International business firms may use
four basic strategies; International strategy; Multidomestic strategy; Global
strategy and transnational strategy.
o International strategy
– This type of strategy is adopted in order to transfer the valuable skills and
products develop in home country to the foreign markets.
o Multidomestic strategy –
International business adopt this strategy by customizing products and
marketing strategies to the host country requirements and environment.
o Global strategy
– This strategy is focus on profit making through cost minimization.
o Transnational strategy
– Exploitation of experienced based economies and customized to the local
conditions.
·
Strategic
Alliance – Is an agreement between two or more
competitive international business firm to serve the global market. This type
of strategy normally occurs with businesses in the same line of business
example airlines.
Global Strategic Management Process can
be structured in the following process;-
1. Analysis of Existing Mission and Goals.
2. Organizational
Analysis of a Global Business firm.
3. Analysis
of International Environment.
4. Formulation
of Alternative Corporate Level Strategy.
5. Formulation
of Alternative Business Unit Level Strategies.
6. Selection
of the best among the Alternative Strategies.
7. Strategy
Implementation.
8. Strategy
Evaluations and Control
International
SWOT Analysis (Taken from Subba Rao, 2012)
Companies should evaluate its strengths,
weaknesses and opportunities and threats of international environment before
making a final decision about going abroad. Following questions can be used in evaluating
strengths and weaknesses. (Subba Rao, 2012)
a. Do
the companies have a strong market position in the respective countries in
which they operate?
b. Do
the companies quality of the products/services compare favourably with those of
their respective world competitors?
c. Do
the companies have technological advantages in the world regions where they
will operate their major business?
d. Do
the companies have a strong brand reputation in the countries in which they
sell their product or services?
e. Do
the companies’ managers and employees have more talent than those of their
world competitors?
f. Do
the companies’ financial profile compare favourably with that of the
industries?
g. Are
the companies consistently more profitable than their world rivals?
h. Are
the companies’ products and process research and development efforts likely to
produce better results than their competitors?
i.
Are the companies’
various world operations subject to unionization?
Evaluation of Opportunities and
Threats, (Subba Rao, 2012)
a. What
threats and Opportunities do political and legal factors present?
b. What
threats and Opportunities do economic factors present?
c. What
threats and Opportunities do technological factors present?
d. What
threats and Opportunities do social factors present?
e. What
is the size of the industry?
f. What
are the growth rate and growth potential of the industry?
g. Is
the industry cyclical? If so, can these cyclical factors be smoothened out
across different world markets?
h. Is
the industry subject to fluctuations in demand because of seasonal factors? If
so, can these seasonal factors be smoothened out across different world
markets?
i.
How intense is world
competition in the industry?
j.
What is the median
industry probability? What is its potential probability?
k. Is
the industry susceptible to unionisation?
l.
What is the rate of
innovation in the industry?
m. Is
the industry cyclical? If so, can the cyclicality be smoothened out across
different world markets?
n. Is
the industry subject to fluctuations in demand because of seasonal factors? If
so, can these seasonal factors be smoothened out across different world
markets?
o. How
intense is the world competition in the industry?
p. What
is the median industry probability? What is its potential probability?
q. Is
the industry susceptible to unionisation?
r.
What is the rate of
innovation in the industry?
Formulation
of Corporate Level Strategies
Global strategies are different from
those of domestic companies. Strategies can be formulated and classified as
corporate level strategies and business unit level strategies.
·
Corporate
Level Strategies – Can be put into four categories
·
Stability
Strategies – Maintaining a status quo and
sustainable growth strategies.
·
Growth
Strategies - Internal growth, concentration
strategies (merger, takeover/acquisition, horizontal integration, joint
ventures etc.).
·
Retrenchment
Strategies – Turnaround, captive, transformation,
divestments and liquidations.
·
Combination
Strategies – Include all possible combinations
Deciding
Which Market to Enter
You will come across some companies
operating in many countries while some companies may operate in a few
countries. Ayal and Zif have suggested that a company should enter fewer
markets when or due to the following factors;
1. Market
entry and market control costs are high.
2. Product
and Communication adaption costs are high.
3. Population
and income size and growth are high in the initial country chosen and;
4. Dominant
foreign firms can establish high barriers to entry.
·
Indirect
Exporting – Exporting through independent
intermediaries to various countries. This form of exports mainly occurs in the
early stages of companies exporting requirements.
·
Direct
Exporting – Export directly to other countries in
order to get more benefits.
·
Licensing
– Licensor licences a foreign company to
use its production process, trademark, patent, trade secret or other item of
value for a fee or royalty.
·
Joint
Ventures – Foreign investors and local
manufacturer join together to form a joint venture. This can lead to
technological transfer, market sharing and investment sharing.
·
Direct
Investment – Direct investment is the ultimate way
of going international and this involve ownership and control of foreign-based
assembly of manufacturing and service facilities.
·
Acquisitions
– Instead of starting a business from scratch, a company acquires an already
established company.
·
Production
Sharing - This can refer to sharing of combined
skills and technology available in the developed countries with the lower cost
labour available in developing countries.
·
Management
Contracts – Large MNCs may have a large amount of
management talent at its disposal and MNCs can use part of its profit or
personals to assist a firm in host country for a specific fee and period of
time.
·
Turnkey
Operations – This type of operations are typically
contracts for the construction of operating facilities in exchange for a fee.
The facilities are transferred to the host country when it is completed.
Formulation
of Alternative Business Unit Level Strategies
Global companies have corporate level
strategies, organizational strengths and environmental opportunities and it is
from these strategies that they formulate their business unit level strategies.
At this level there are important factors such as;
·
Low
cost leadership strategy – Companies using this
strategy by bringing the firm closer to the raw materials and to the markets as
well as adopting new technologies etc.
·
Focus
or Niche Strategy – The formulation of
specific strategies for specific markets.
·
Differentiation
Strategies – This type of strategies differentiate
product policies, price policies, service policies from country to country and
from customer to customer.
·
Offensive
Strategies – Attacking competitor’s strengths,
weaknesses etc.
·
Defensive
Strategies – Protecting company’s competitive
position and other advantages.
International
Product Portfolio
In international product portfolio you
seeking to match markets with products and other corporate resources with the
view to strengthen and analyse strategies. Planners look at the country’s
attractiveness and product strength.
·
In country there is
high attractiveness (Investment & growth is high) Low is the opposite
·
Competitive Strength
(High & Low also).
Strategy
Implementation
The factors of strategy implementation
include the following;
·
Partner selection
·
Organizational
structure
·
Behavioural
implementation
·
Marketing
implementation
·
Financial
implementation
·
Production
implementation
·
Human Resource
Implementation
Strategy
Evaluation and Control
Strategies may sometimes not be
implemented due to changes in environmental factors, incompatibility in
conditions of host country etc. Therefore evaluation and control is important.
The following can be done;
·
Establish the standards
of strategic management process.
·
Measure the performance
of the process at every stages.
·
Compare the standards
with performances.
·
Observe the deviations.
·
Take corrective steps.
Students are encouraged to read the source text books for more information.
Sources:
International Business Environment by
Francis Cherunilam, (2009) Himalaya Publishing House
International Business by P Subba Rao,
(2012) Himalaya Publishing House.
Business Ethics by Andrew Crane, Dick
Matten, (2007) Oxford University Press or other related text books and
materials.
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