Strategic Management – process of determining an organization’s basic mission and long-term objectives and then implementing a plan of action for pursuing this mission and attaining these objectives.Needs for Strategic Management:Keep track of their increasingly diversified operations in a continuously changing international environment. (need to coordinate and integrate diverse operations with a unified and agreed-on focus)Benefits for Strategic Management:Strategic planning is critical to their success – at home office and in subsidiaries.Planning intensity (degree to which a firm carries out strategic planning) is an important variable in determining performance.Approaches to Formulating and Implementing StrategyEconomic imperativeA worldwide strategy based on cost leadership, differentiation, and segmentationMiddle management key to stimulating profit growth within a company. Sell products for which a large portion of value is added in upstream activities of industry’s value chainAlso used when product is a generic food and doesn’t have to be sold based on name brand or support service; ex. Computers – cheap or expensive do same thingsGlobal sourcing. Ex. Buying fabric and yarn… go upstream to organize production.Political imperativeCountry-responsive; designed to protect local market niches.Ex. Insurance and consumer packaged goods- success of the product/service depends heavily on marketing, sales, and service. Country-centered or multi-domestic strategyEx. ‘Thums Up’ brand by Coca-Cola in India.Quality imperativeTotal quality management to meet or exceed customers’ expectations and continuously improve products or services.2 interdependent paths: change in attitudes and a raising of expectation for service quality; and implementation of management practices that are designed to make quality improvement an ongoing process.Commonly called total quality management (TQM). Quality v. important to overall strategyAdministrative coordination strategyMNC makes strategic decisions based on the merits of the individual situation rather than using a predetermined economic or political strategyEx. Walmart, expanded into Latin America.Global and Regional StrategiesGlobal integration = the production and distribution of products and services of a homogeneous type and quality on a worldwide basis. Ex. Automobiles and computersNational responsiveness = the need to understand the different consumer tastes in segmented regional markets and respond to different national standards and regulations imposed by autonomous governments and agencies. Ex. International manufacturers now tailor their offerings to the American car market.Figure 8-1, page 278 – vertical axis: economies of scale (takes advantage of large size) and capitalizes on lowering unit costs (through experience curve benefits). Horizontal axis: measures need for multinationals to respond to national responsiveness or differentiation. MNC’s must address local tastes and government regulationsQuadrant 1 = global strategies: integrated strategy based primarily on price competition. Mergers and acquisitions occurQuadrant 4 = multi-domestic strategy: differentiated strategy emphasizing local adaptationQuadrant 2: obtaining economies of scale and benefits of being sensitive to differentiation are of little value. Increase standardization of products and services. International strategy: mixed strategy combining low demand for integration and responsivenessQuadrant 3: transnational strategy: integrated strategy emphasizing both global integration and local responsiveness. Difficult to ‘localize’.***transnational is often preferred strategy but most difficult to implementBasic Steps in Formulating a strategy –Scanning the external environment for opportunities and threats; conduct an internal resource analysis of company strengths and weaknesses; formulating goals in light of the external scanning and internal analysis.EXTERNAL: Environmental scanning – process of providing management with accurate forecasts or trends related to external changes in geographic areas where the firm currently is doing business or is considering setting up operationsRegulatory, social, political, economic, technological, industry/marketIndustry/market – role of all potential competitors and relationships surrounding those competitors. Changes in technology.Regulatory – shifting laws or regulatory guidelines. Ownership/property rights. Minimum wage laws.Economic – rates, rates of employment, exchange rates, inflation ratesSocial – demographic shifts including age, education, income.Political – can impact how a company runs operations.INTERNAL: Internal Resource Analysis – helps firm evaluate current managerial, technical, material and financial resources and capabilities to better asses strengths and weaknesses.Key success factor (KSF) – a factor necessary for a firm to effectively compete in a niche market. EX. KSF for an airline is price, safety, quality of service.Goal Setting for Strategy Formulation – Profitability, Marketing, Operations, Finance, Human ResourcesProfitability and marketing at top bc more externally environmentally responsive. Whereas others are more internally controlled. Also prof and mark often need higher profitability from their overseas operations than they do from their domestic operations.Strategy Implementation – process of providing goods and services in accord with a plan of action.Three general areas that international managements must consider:MNC must decide where to locate operations.Country and specific locale within the chosen countryAmount of government control and restrictions on foreign investmentLocale – considerations include access to markets, proximity to competitors, availability of transportation and electric power, desirability of location for employees coming in from the outside, nature of workforce, cost of doing business.MNC must carry out entry and ownership strategies.Must implement functional strategies in areas such as marketing, production and finance.The Role of the Functional Areas in Implementation:Marketing – four “P’s”- product, price, promotion, placeProduction – worldwide production is important.Finance – transferring funds in the international money markets, often is less expensive than relying on local sources. Problem with this: reevaluation of currencies.Specialized Strategies (for emerging markets):First Mover