Academic year

Semester: Fall

IBM

Dr : Heba Atef

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Economic
Forces &
International
Competitive
StrategyCH3
Module 7

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 Learning Objectives

7-1 Explain the purpose of economic analyses.

7-2 Compare different categories of countries, based on
levels of national economic development.
7-3 Outline the dimensions used to describe the economy
and their indicators.
7-4 Discuss the socioeconomic dimensions of economies
and the indicators used to assess them.

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 Two Emerging Asian Superpowers: The
China-versus-India Development Race
Representing the largest populations on the planet, China
and India are competing with each other for wealth and
influence. Economically, China leads in terms of economic
development. But some believe that India has advantages in
the long run in terms of English fluency and a younger
demographic.
To date, India’s strength has been in services while China
has been the manufacturing powerhouse. Both countries
have become major destinations for outsourcing.

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 International Economic Analyses 1

Economic Analyses for Multinationals

• More complex than those for a purely domestic firm.
• There are many economies to consider instead of just one, there
are interactions between them, and values are highly divergent.

• Purpose is to assess the overall outlook for the economy

and the impact of economic changes on the firm.
• Should include economic data on actual and prospective
markets.

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 Figure 7.1 Impact of Economic Forecast on
Firm’s Functional Areas

Access the text alternative for slide images.

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 * Labor, capital, natural resources and entrepreneurship are the four essential
components in the production of goods and services in an economy. The quantity
and quality of labor that individuals supply is an important factor in determining the
economy's level of production and rate of growth.

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 International Economic Analyses 2

Foreign Environment
• Includes all the uncontrollable forces originating outside
the home country that surround and influence the firm.
• The interaction between domestic and foreign
environmental forces or between sets of foreign
environmental forces.

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 Levels of Economic Development 1

Gross Domestic Product

• The total monetary value of all goods and services
produced within a nation.
Gross National Income (GNI)
• The total value of all income generated by the residents of
a nation, including both the domestic production of goods
and services and income from abroad.

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 Levels of Economic Development 3

Developing Economies
• A classification for the world’s lower-income nations, which
have less technically developed infrastructures and lower
living standards.
Developed Economies
• A classification for high-income industrialized nations,
which have high living standards and the most technically
developed infrastructures.

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 Table 7.1 Characteristics of Developing Economies 2

• Per capita gross national income of less than $12,056 (World Bank criterion).

• A moderate to low material standard of living and quality of life index, regional dualism
reflecting a high productivity and incomes in some regions and little economic development
in others, unequal distribution of income with a very small middle class.

• Technological dualism, meaning the presence of a mix of firms employing the latest
technology and companies using very primitive methods.

• Low savings rates, inadequate banking facilities, and high dependence on a few products
for export, generally agricultural products or minerals.

• A relatively unproductive agricultural sector that provides a living for most of the population.

• Political instability and deficient governmental and legal systems.

• High illiteracy rate and few educational facilities.

• Disguised unemployment or underemployment (two people do a job one person could do).

• Widespread malnutrition and a wide range of health problems.

• Inhospitable topography, such as deserts, mountains, and tropical forests.

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 Table 7.1 Characteristics of Developed Economies 1

• Per capita gross national income of $12,056 or more (World Bank criterion).

• A high material standard of living, high quality of life index, and a substantial
middle class.

• Frequent application of the most advanced production techniques and

equipment.

• A large base of productive capital, sophisticated financial markets and banking

systems, and vigorous international trade in a range of sectors.

• A very small share of total output coming from agriculture and a declining share
for manufacturing.

• Well-established governmental and legal systems.

• Plentiful educational opportunities and low illiteracy.

• Relatively low levels of unemployment or underemployment.

• Adequate or high levels of nutrition and access to health care.

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 Critical Thinking Question

What impacts do economic forecasts have on a

firm’s functional areas?
If management learns from the economic analysis of
country A that wage rates are expected to increase
by 10 percent next year, which functional areas of
the firm will be concerned?
Why will this be of concern to management?

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 What Is International Strategy, and Why Is It Necessary? 1

International Strategy
• A plan that guides the way firms make choices about
developing and deploying scarce resources to achieve
their international objectives.
• Must be consistent throughout company to be a success.

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 What Is International Strategy, and Why Is It Necessary? 2

Competitive Advantage
• Ability of a company to achieve and maintain a unique
and valuable competitive position both within a nation and
globally, generating higher rates of profit than its
competitors.

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 What Is International Strategy, and Why Is It Necessary? 3

To achieve competitive advantage, a company must

develop competencies that:
1. Create value for which customers are willing to pay.
2. Are rare.
3. Are difficult to imitate or substitute for.
4. Allow the firm to be organized to fully exploit the
competitive potential of these competencies.

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 What Is International Strategy, and Why Is It Necessary? 4

Why Plan Globally?

• Strategic planning is the process by which an organization
determines where it is going in the future, how it will get
there, and how it will assess whether and to what extent it
has achieved its goals.
• Provides a way to identify opportunities and threats.
• Gives decision makes a common understanding of
business, strategy, assumptions, and direction.

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 Critical Thinking Question

What is international strategy?

Do you think it is useful for companies to take the
time and effort to prepare international strategies if
they are in rapidly changing competitive situations
with high levels of uncertainty?
Why or why not?

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 The Process of Global Strategic Planning 1

Strategic planning is a formal structure with the

following steps:
1. Analyze the company’s external environments.
2. Analyze the company’s internal environment.
3. Define the company’s business and mission.
4. Set corporate objectives.
5. Quantify goals.
6. Formulate strategies.
7. Make tactical plans.

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 The Process of Global Strategic Planning 2

Step 1: Analyze Domestic, International, and

Foreign Environments
• Managers must know what the present force values are
and where they appear to be going, and to develop and
implement appropriate responses to any changes in key
environmental forces.
• Environmental, social, and business trends are more
critical to strategy than in the past, but few act on it.

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 The Process of Global Strategic Planning 3

Step 2: Analyze Corporate Controllable Variables

• Value chain is the set of interlinked activities that add
value to the final product or service.
• Value chain analysis assesses where and to what extent
value is added to the final product or service.
1. Who are the company’s target customers?
2. What value does the company want to deliver to these
customers?
3. How will this customer value be created?

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 Figure 9.2 The Value Chain

Source: Adapted from M. E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, New York, NY: Free Press, 1985.

Access the text alternative for slide images.

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 The Process of Global Strategic Planning 4

Step 2: Analyze Corporate Controllable Variables

continued

• Knowledge as a controllable corporate resource.

• Knowledge management is the practice organizations use for
identifying, creating, acquiring, developing, dispersing, and
exploiting competitively valuable knowledge.

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 The Process of Global Strategic Planning 7

Step 3: Define the Corporate Mission, Vision, and

Values Statements continued
• Values statement is a clear, concise description of the
fundamental values, beliefs, and priorities expected of the
organization’s members, reflecting how they are to behave
with each other and with the company’s customers,
suppliers, and other members of the global community.

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 The Process of Global Strategic Planning 8

Step 4: Set Corporate Objectives

• Objectives direct the firm’s course of action, maintain it
within the boundaries of the stated mission, and ensure its
continuing existence.

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 The Process of Global Strategic Planning 10

Step 6: Formulate the Competitive Strategies

• Competitive strategies are action plans that help
organizations reach their objectives.
• Two opposing forces in international market:
1. Reduction of costs.
2. Adaptation to local market.

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