CHAPTER 3 INTERNATIONAL STRATEGIC MANAGEMENT

International strategic planning

International strategic planning is a process of evaluating the internal and external
environment by multinational organizations, through which they set their long-term and short-
term goals and then they implement a specific plan of action in order to achieve those objectives.
STRATEGIC COMPULSIONS: It means that the companies face the compulsion to be
global if they want to gain the global market and more values. But in the modern context
strategic management faces many compulsions. The present and future development of the field
of strategic management is likely to be driven by compulsions like contemporary developments
in social and economic theory and recent changes in the nature of the business and economic
context.
International/global strategic management
Strategic management is the process of systematically analyzing various opportunities
and threats vis-à-vis organizational strengths and weaknesses, formulating and arriving at
strategic choices through critical evaluation of alternatives and implementing them to meet the
set objectives of the organization.
Area of strategic compulsions
1. Orientation for globalization
2. Emerging E-commerce and Internet culture
3. Cut-throat competition
4. Diversification
5. Active pressure groups
6. Motive for corporate social responsibility (CSR) and ethics.
STANDARDIZATION VERSUS DIFFERENTIATION:
According to Levitt, represents local marketing versus global marketing and focus on the
central question of whether a standardized (global) or a differentiated (local), country-specific
marketing approach.
Perspectives on standardization versus Differentiation:
1) Regional perspective
2) Marketing process prospective
3) Marketing components/marketing mix perspective
STRATEGIC OPTIONS:
Strategic options/choice involves the selection of a strategy or set of strategies that helps in
achieving organizational objectives.
1. Global strategy
2. International strategy
3. Transactional strategy
4. Multi-domestic strategy
1. Global strategy: It views the world as a single market. Tightly controls global operations
from headquarters to preserve focus on standardization.
2. International strategy: In this strategy company extends marketing, manufacturing, and other
activities outside the home country.
3. Multi-domestic strategy: the international company discovers that differences in markets
around the world demand an adaptation of its marketing mix in order to succeed.
4. Transactional strategy: this is company that thinks globally and acts locally. The
transactional corporation is much more than a company with sales, investments and operations in
many countries.
Factors affecting strategic options:
1) External constraints
2) Intra-organizational forces and managerial power-relations
3) Values and preferences and managerial attitudes risk
4) Impact of past strategy
5) Time constraints in choice of strategy.
6) Information constraints
7) Competitor’s reaction
GLOBAL PORTFOLIO MANAGEMENT:
Global portfolio investment means the purchase of stocks, bonds, and money market
instruments by foreigners for the purpose of realizing a financial return which does not result in
foreign management, ownership, or control. Portfolio investment is part of the capital account on
the balance of payments statistics. An international portfolio is designed to give the investor
exposure to growth in emerging and international markets and provide diversification.
 Factors affecting global portfolio investment:
1) Tax rates on interest or dividends
2) Interest rates
3) Exchange rates
Problems of global portfolio investment:
1. Unfavorable exchange rate movement
2. Frictions in international financial market
3. Manipulation of security prices
4. Unequal access to information
Global entry strategies Level of involvement:
 Wholly owned subsidiary
 Company acquisition
 Assembly operations
 Joint venture
 Strategic alliance
 Licensing
 Contract manufacture
 Direct marketing
 Distributors and agents
 Sales force
 Trading companies
 Export management companies
 Piggyback operations
 Domestic purchasing
 Franchising
GLOBAL ENTRY STRATEGIES: FORMS OF INTERNATIONAL BUSINESS:
I) Exporting as an entry strategy: Exporting is the most traditional mode of entering the
foreign market. Exporting is that which allows manufacturing operations to be concentrated in a
single location, which may lead to scale economics.
a) Indirect exporting: For firms that little inclination or few resources for international
marketing, the simplest and lowest cost method of market entry is for them to have their products
sold overseas by others
b) Direct exporting: Exporting is the most popular approach for firms as it requires
fewer resources, has little effect on existing operation and involves low investment and financial
risks.
 II)Manufacturing strategies without foreign direct investment:
1) Licensing: Under a licensing agreement, a company (the licensor) grants rights to
intangible property to another company (the licensee) for a specified period; in exchange, the
licensee ordinarily pays a royalty to the licensor.
2) Franchising: It means of marketing goods and services in which the franchiser grants
the legal right to use branding, trademarks and products and the method of operation is
transferred to third party – the franchise – in return for a franchise fee.
3) Contract manufacture: A firm which markets and sells products into international
markets might arrange for a local manufacturer to produce the product for them under contract.
4) Turnkey projects: It is a contract under which a firm agrees to fully design, construct
and equip a manufacturing/business/service facility and turn the project over to the purchaser
when it is ready for operation for remuneration.
5) Managements contracts: It is an agreement between two companies, whereby one
company provides managerial assistance, technical expertise, and specialized services to the
second company of the argument for a certain agreed period in return for monetary compensation
III) Manufacturing strategies with FDI:
1) Joint ventures: It occurs when a company decides that shared ownership of a
specially set up new company for marketing and/or manufacturing is the most appropriate
method of exploiting a business opportunity.
2) Strategic alliances: SIA is a business relationship established by two or companies to
co-operate out of mutual need and to share risk in achieving a common objective.
3) Merger: It is a combination (other terms are amalgamation, consolidation, or
integration) of two or more organizations in which one acquires the assets and liabilities of the
other in exchange for shares or cash.
4) Acquisition: It is process of acquiring and purchasing an existing venture. It is one of
the easy means of expanding a business by entering new markets or new product areas.
5) wholly owned subsidiary: The common reason for operating wholly-owned
subsidiary separately from the owner company could be name value. Often, a well-known and
respected corporation is acquired by another entity that has no name recognition in that market.
6) Assembly operations: A foreign owned operation might be set up simply to assemble
components which have been manufactured in the domestic market. It has the advantage of
reducing the effect of tariff barriers which are normally lower on components than on finished
goods.
The advantages of International business (an economic view) The economic benefits that
greater openness to international trade bring are:
  Faster growth: economies that have in the past been open to foreign direct
investments have developed at a much quicker pace than those economies closed
to such investment communist Russia
 Cheaper imports: this is down to the simple fact that if we reduce the barriers
imposed on imports then the imports will fall in price
 New technologies: by having an open economy we can bring in new technology
as it happens rather than trying to develop it internally
 Spur of foreign competition: foreign competition will encourage domestic
producers to increase efficiency. Carbaugh (1998) states that global
competitiveness is a bit like golf, you get better by playing against people who
are better than you.
 Increase consumer income: multination will bring up average wage levels
because if the multinationals were not there the domestic companies would pay
less.
Increased investment opportunities: with globalization companies can move capital
to whatever country offers the most attractive investment opportunity. This prevents
capital being trapped in domestic economies earning poor returns.
Factors affecting the selection of entry mode External factors
1) Market size
2) Market growth
3) Government regulations
4) Level of competition
5) Level of risk
Internal factors
1) Company objectives
2) Availability of company resources
3) Level of commitment
4) International experience
5) Flexibility
ORGANIZATIONAL ISSUES OF INTERNATIONAL BUSINESS
ORGANIZATIONAL STRUCTURE:
An organizational structure defines how activities such as task allocation, coordination
and supervision are directed towards the achievement of organizational aims. It can also be
considered as the viewing glass or perspective through which individuals see their organization
and its environment.
Organizations are a variant of clustered entities.
An organization can be structured in many ways, depending on their objectives.
The structure of an organization will determine the modes in which it operates and
performs.
Organizational structure allows the expressed allocation of responsibilities for different
functions and processes to different entities such as the branch, department, workgroup and
individual. It affects organizational action in two big ways. First, it provides the foundation on
which standard operating procedures and routines rest. Second, it determines which individuals
get to participate in which decision-making processes, and thus to what extent their views shape
the organization’s actions.

Designing organizational structure: It includes an analysis of the following aspects.

1) External environment
2) Overall aims and purpose of the enterprise
3) Objectives
4) Activities
5) Decisions
6) Relationships
7) Organization structure
 8) Job structure
9) Organization climate
10) Management style
11) Human resource
Types of organizational structure
1) International division’s structure: Grouping each international business activity into
its own division, puts internationally specialized personnel together to handle such diverse
matters as export documentation, foreign exchange transactions and relations with foreign
governments.
2) Functional division’s structure: It emphasizes on specific functions such as
manufacturing, marketing, finance and so on. It is more suitable where the products and
customers are few and homogeneous.
3) Product division structure: It is more common in international business and more
suitable in case of a multiple brand system. In this case, there are different product divisions, in
each division, there are subdivisions.
4) Geographic (Area) division structure: In case of area structure, organization is based
on the geographic areas, namely, Asia, Africa, and Latin America and so on and the operation is
divided accordingly.
5) Matrix division structure: The global matrix structure is more complex when it
combines all the three aspects – product, area, and function. This is found in multi-product firms
where one group of products needs area structure of organization, while the other group of
products needs functional structure, and for yet another group, product structure is found more
appropriate.
6) Mixed structure: Most firms allow the hybrid design which best suits their purpose as
dictated by size, strategy, and technology, environment, and culture. This is the reason why the
famous saying “structure follows strategy has emerged. Ex: Philips and Unilever
Controlling of international business
According to Child, “Control is essentially concerned with regulating the activities within
an organization so that they are in accord with expectations established in policies, plans and
practices.
Types/Methods of control systems:
1) Personal controls: It is control by personal contact with subordinates.
2) Bureaucratic controls: The control through a system of rules and procedures that
directs the actions of sub-units.
 3) Output controls: It involves setting goals for subsidiaries to achieve; expressing these
goals in terms of relatively objective criteria such as profitability, productivity, growth, market
share, and quality.
4) Cultural controls: It exists when employees “buy into” the norms and value systems
of the firm.