Strategy for International companies
Ing. Šárka Zapletalová, Ph.D.
Department of Business Economics and Management
STRATEGIC MANAGEMENT

Outline of the lecture
1.Evaluation and control in strategic management
2.Evaluating an implemented strategy
3.Measuring performance
4.Strategic information system
5.Guidelines for proper control
6.
6.
1.
1.
1.
1.

Introduction
•International business refers to business activities that straddle two or more countries.
•
•International business activities are defined as all business activities, including the creation
and transfer of resources, goods, services, know-how, skills and information which transcend
national boundaries. Transactions of economic resources include capital, skills, people etc. for
international production of physical goods and services such as finance, banking, insurance,
construction etc.
•
•Internationalization of entrepreneurial activities is the necessity for the majority of
entrepreneurial subjects.
•
•

Internationalization of Entrepreneurial Activities
•The internationalization of entrepreneurial activities is represented by geographic expansion of
entrepreneurial activities cross national borders.
•
•The internationalization business literature has witnessed the emergence of at least six key
theories over the last four decades. These theories are grounded in four different theoretical
paradigms of the company:
•the market imperfection paradigm;
•the behavioral paradigm;
•the market failure;
•the resource-based view.
•

International Organizations
•International business activities may be defined simply as business transactions that take place
across national borders.
•
•This definition includes the very small organization that exports (or imports) a small quantity to
only one country, as well as the very large global organization with integrated operations and
strategic alliances around the world.
•
•Within this broad array, distinctions are often made among different types of international
company, and these distinctions are helpful in understanding a organization´s strategy,
organizational structure, and functional decisions:
•Multinational enterprises;
•Global companies;
•Transnational companies.

International Organizations
Multinational enterprises
•
•Multinational enterprise MNE is an organization (the parent company) which acquires ownership or
other contractual ties in other organizations (including companies and unincorporated companies)
outside its home country.
•
•The parent company (from home country) co-ordinates and controls the international business
activities carried out by all the organizations within the MNE´s broad control.
•
•These enterprises using a multinational strategy sacrifices efficiency in favor of emphasizing
responsiveness to local requirements within each of its markets.

International Organizations
Global enterprises
•
•Global companies have invested and are present in many countries. They market their products
through the use of the same coordinated image/brand in all markets.
•
•The global company has a more specific meaning, referring to an enterprise that engages in
value-added activities in each of the major regions of the world, and which pursues an integrated
strategy towards these activities. Generally one corporate office is responsible for global
strategy. Emphasis is on volume, cost management and efficiency.
•
•The global company using a global strategy sacrifices responsiveness to local requirement within
each of its markets in favor of emphasizing efficiency. Some minor modifications to products may be
made in various markets, but a global strategy stresses the need to gain economies of scale by
offering essentially the same products in each market.

International Organizations
Transnational corporations
•
•Transnational corporations are all enterprises which control assets (factories, mines, sales
offices and the like) in two or more countries. Transnational is a company that owns assets and
operates direct business activities in at least two countries.
•
•Transnational corporations are companies that supply foreign markets entirely through exports and
that concentrate on those which engage in international production.
•
•Transnational corporations have become central actors of the world economy and, in linking foreign
direct investment, trade, technology and finance, they are a driving force of economic growth.

Stages of International Development
Corporations operating internationally tend to evolve through five common stages, both in their
relationships with widely dispersed geographic markets and in the manner in which they structure
their operations and programs.
•Stage 1 (Domestic company): The primarily domestic company exports some of its products through
local dealers and distributors in the foreign countries. The impact on the organization’s structure
is minimal because an export department at corporate headquarters handles everything.
•
•Stage 2 (Domestic company with export division): Success in Stage 1 leads the company to establish
its own sales company with offices in other countries to eliminate the middlemen and to better
control marketing. Because exports have now become more important, the company establishes an
export division to oversee foreign sales offices.
•

Stages of International Development
•Stage 3 (Primarily domestic company with internationa division): Success in earlier stages leads
the company to establish manufacturing facilities in addition to sales and service offices in key
countries. The company now adds an international division with responsibilities for most of the
business functions conducted in other countries.
•Stage 4 (Multinational corporation with multidomestic emphasis): Now a full-fledged MNC, the
company increases its investments in other countries. The company establishes a local operating
division or company in the host country. As the subsidiary in the host country successfully
develops a strong regional presence, it achieves greater autonomy and self-sufficiency.
•Stage 5 (MNC with global emphasis): The most successful MNCs move into a fifth stage in which they
have worldwide human resources, R&D, and financing strategies. Typically operating in a global
industry, the MNC denationalizes its operations and plans product design, manufacturing, and
marketing around worldwide considerations.
•

•
Prostor pro doplňující informace, poznámky
Strategy on International Markets
International strategy
Harley-Davidson
Rolex
Starbucks
Multinational strategy
Bridgestone
Nestlé
Philips
Transnational strategy
ABB
Bertelsmann
Procter & Gamble
low
Pressure to local sensitivity
Pressure to reduce costs
high
low
high
Global strategy
Infosys
Lenovo
Siemens Energy

International Strategies
International strategy
•One of the oldest types of global strategies;
•First step companies take when beginning to conduct business abroad;
•Company sells the same products in both domestic and foreign markets;
•Companies to leverage their home-based core competencies in foreign markets;
•The strategy is often used successfully by companies with relatively large domestic markets and
with strong reputations and brand names;
•Foreign customers want to buy the original products, differentiation strategy is preferred
business strategy;
•The strategy is tends to rely on exporting or the licensing or the franchising to reap economies
scale by accessing a larger market.
•

International Strategies
Multidomestic strategy
•Maximize local responsiveness hoping that local consumers will perceive their products as local
ones;
•Frequently use the strategy when entering host countries with large and/or idiosyncratic domestic
markets (Japan);
•Common in the consumer products and food industries;
•Differentiation strategy on business level;
•The is costly and inefficient because it requires the duplication of key business functions across
multiple countries;
•Each country unit tends to be highly autonomous, and the company is unable to reap economies of
scale or learning across regions.
•

International Strategies
Global strategy
•The strategy attempt to reap significant economies of scale and location economies by pursuing a
global division of labor based on wherever best-of-class capabilities reside at the lowest cost;
•Business strategy to be cost leadership, there is little or no differentiation or local
responsiveness because products are standardized.
•
Transnational strategy
•The strategy attempt to combine the benefits of a localization strategy (high local
responsiveness) with those of a global strategy (lower-cost position attainable);
•Combination of high pressure for local responsiveness and high pressure for cost reductions;
•Company that pursue a blue ocean strategy at the business level;
•Managers` mantra is to think globally, but act locally;
•Matrix organizational structure.
•

International Strategies
Benefits of international strategies
•International strategy – leveraging core competencies; economies of scale; low cost implementation
through exporting, franchising, licensing.
•Multidomestic strategy – highest-possible local responsiveness; increased differentiation; reduced
exchange-rate exposure.
•Global strategy – location economies: global division of labor based on wherever best-of-class
capabilities reside at lowest cost; economies of scale and standardization.
•Transnational strategy – attempts to combine benefits of localization and standardization
strategies simultaneously by creating a global matrix structure; economies of scale, location,
experience, and learning.
•

International Strategies
Risks of international strategies
•International strategy – no or limited local responsiveness; highly affected by exchange-rate
fluctuations; embedded in product could be expropriated.
•Multidomestic strategy – duplication of key business functions in multiple countries leads to high
cost of implementation; little or no economies of scale; little or no learning across different
regions; higher risk of expropriation.
•Global strategy – no local responsiveness; little or no product differentiation; some
exchange-rate exposure; race to the bottom as wages increase; some risk of expropriation.
•Transnational strategy – global matrix structure is costly and difficult to implement, leading to
high failure rate; some exchange-rate exposure; higher risk of expropriation.
•

International Strategies
Structure and controls
International
Multi-domestic
Global
Transnational
Vertical differentiation
Core competency centralized, other decentralized
Decentralized
Some centralized
Mixed
Horizontal differentiation
Product division
Area structure
Product division
Informal matrix
Need for coordination
Moderate
Low
High
Very high
Integrating mechanisms
Few
None
Many
Very many
Performance ambiguity
Moderate
Low
High
Very high
Need for controls
Moderate
Low
High
Very high

Internationalization Process of Enterprises
Generally, we can distinguish four basic stages of the process of the internationalization of
entrepreneurial activities:
•The first stage of the process of the internationalization of entrepreneurial activities cannot be
literally understood as the carrying out of entrepreneurial activities on international markets.
•In the second stage of the internationalization the domestic market remains still the priority for
the company, but the awareness of the necessity of the development of entrepreneurial activities is
growing.
•In the third stage of internationalization one can already refer to international entrepreneurship
and the company is becoming multinational.
•The fourth stage of internationalization is typical of using international managerial teams and
indeed global management of all company’s activities.
•

Internationalization Process of Enterprises
Risks of internationalization activities
•Country risks
•Government intervention, protectionism, barriers to trade and investment;
•Bureaucracy, red tape, administrative delays, corruption;
•Lack of legal safeguards for intellectual property rights;
•Legislation unfavorable to foreign companies;
•Economics failures and mismanagement;
•Social and political unrest and instability.
•Commercial risks
•Weak partner;
•Operational problems;
•Timing of entry;
•Competitive intensity;
•Poor execution of strategy.
•

Internationalization Process of Enterprises
Risks of internationalization activities
•Trasportation risks
•Currency risks
•Currency exposure;
•Asset valuation;
•Foreign taxation;
•Inflationary and transfer pricing.
•Market risks
•Cultural differences;
•Negotiation patterns;
•Decision-making styles;
•Ethical practices.
•

Internationalization Process of Enterprises
Strategic decisions in internationalization process
•
•The internationalization of entrepreneurship activities counts among strategic long-lasting
decisions; these decisions bring significant changes in running a organization and are conditioned
by them as well.
•
•The progress and speed of business activity internalization depends on the importance and role
that is assumed to the international entrepreneurship within entrepreneurship strategy of the
organization.
•
•Among some fundamental strategic decisions accompanying the internationalization of
entrepreneurial subjects are included:
•Timing of entering foreign markets;
•Geographical scope of internationalization;
•Foreign entry mode selection.
•

Internationalization Process of Enterprises
Going Globaly: Why?
•
•Companies expand beyond their domestic borders if they can increase their economic value creation
(V – C) and enhance competitive advantage.
•
•Advantages of going global
•Gain access to a larger market – economies of scale and economies of scope
•Gain access to low-cost input factors – low-cost leadership strategy
•Develop new competencies – differentiation strategy
•Disadvantages of going global
•Liability of foreignness
•Loss of reputation
•Loss of intellectual property
•

Internationalization Process of Enterprises
Going Globaly: Where?
•
Where in the world to compete?
•Consider that several countries and locations can score similarly on such absolute metrics of
attractiveness (for example Ireland and Portugal)
•Consider relative distance in the CAGE model – decision framework based on the relative distance
between home and foreign target country along four dimensions:
•Cultural – cultural disparity between an internationally, expanding firm`s home country and its
targeted host country.
•Administrative and political – factors such as the absence or presence of shared monetary or
political associations, political hostilities and weak or strong legal and financial institutions.
•Geographic – the costs to cross-border trade rise with geographic distance.
•Economic – the wealth and per capita income of consumers.
•

Internationalization Process of Enterprises
Going Globaly: How?
•
How do MNEs enter foreign markets?
•Dimensions– level of investments, level of control
•Foreign entry modes
•Export entry modes – one of the oldest forms of internationalization
•Contractual entry modes
•Investment entry modes
•

Globalization
•Globalization is a process of closer integration and exchange between different countries and
people worldwide, made possible by falling trade and investment barriers, advances in
telecommunications, and reductions in transportation costs.
•These factors reduce the costs of doing business around the world, opening doors to a much larger
market than any one home county.
•Globalization also allows companies to source supplies at lower costs, to learn new competencies,
and to further differentiate products.
•The world`s market economies are becoming more integrated and interdependent.
•Globalization has led to significant increases in living standards in many economies around the
world.
•The engine behind globalization is the multinational enterprise MNE – a company that deploys
resources and capabilities in the procurement, production, and distribution of goods in at least
two countries. By making investments in value chain activities abroad, MNEs engage in foreign
direct investment FDI.
•

Globalization
Stages of globalization
•Globalization 1.0 (1900 – 1941)
•Basically all the important business functions were located in the home country.
•Only sales and distribution operations took place overseas (essentially exporting)
•Firms procured raw materials from overseas.
•Strategy formulation and implementation (knowledge flows), followed a one-way path – from domestic
headquarters to international outputs.
•The time period saw the blossoming of the idea of MNEs.
•Globalization 2.0 (1945 – 2000)
•New focus on growing business – needs went unfulfilled and to reconstruct the damage from the war.
•MNEs began to create smaller, self-contained copies of themselves, with all business functions
intact, in a few key countries (Japan, Australia, Western Europe) – significant amounts of FDI
•It was costly to duplicate business functions in overseas outposts, doing so allowed for greater
local responsiveness to country-specific circumstances.
•While the U.S. corporate headquarters set overarching strategic goals and allocated resources
through the capital budgeting process, local mini MNE replicas had considerable leeway in
day-to-day operations.

Globalization
•Globalization 3.0 (21st century)
•MNEs that had been the vanguard of globalization have since become global-collaboration networks.
•Companies now freely locate business functions anywhere in the world based on an optimal mix of
costs, capabilities, and PEST factors.
•The MNE recognizes from a multinational company with self-contained operations in a few selected
countries to a more seamless global enterprise with centers of expertise. Each of these centers of
expertise is a hub within a global network for delivering products and services.
•Creating a global network of local expertise is beneficial not only in service industries, but
also in the industrial sector.
•To increase the rate of low-cost innovation that can then be used to disrupt existing markets, GE
organizes local growth teams in China, India, Kenya and many other countries. Many of these
low-cost innovations, first developed to serve local needs, are later introduced in Western markets
to become disruptive innovations.
•GE uses the slogan “in country, for country” to describe the local growth teams` autonomy in
deciding which products to develop, how to make them, and how to shape the business model.
•Some new ventures organize as global-collaboration networks from the start (Logitech).
•