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Chapter 6:
Formulating Strategy
PowerPoint by
Hettie A. Richardson
Louisiana State University

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Opening Profile: Wal-Marts
Formula Doesnt Fit

Wal-Marts attempts to apply its
strategy internationally have not all
been successful
Germany, South Korea
Difficulty dealing with labor unions
Lack of scale
Inability to compete with established
discounters

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Opening Profile: Wal-Marts
Formula Doesnt Fit

Wal-Mart is learning from its mistakes
Greater acquisitions
Asda, Seiyu, Bompreo
Smiling clerks in Germany
12% growth internationally

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Strategic Planning and Strategy

Strategic planning: The process by which a
firms managers evaluate the future prospects
of the firm and decide on appropriate
strategies to achieve long-term objectives

Strategy: The basic means by which the firm
competes

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Reasons for Going International

Reactive (defensive) reasons
Globalization of competitors
Trade barriers
Regulations and restrictions
Customer demands

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Reasons for Going International

Proactive (aggressive) reasons
Economies of scale
Growth opportunities
Resource access and cost savings
Incentives


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Management Focus: Mexicos
Cemex

Is aggressively growing via worldwide
acquisitions

Bid $12.8 billion in 2006 for the Rinker Group
of Australia

Has operations on five continents with 2005
sales of $15.3 billion

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Strategic Formulation Process

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Mission and Objectives
Marketing
Worldwide,
regional, national
market share

Production
Production volume
Economies of
scale
Finance
Tax burden
Capital structure

Profitability
ROA, ROE, ROI

R & D
Global patents

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Environmental Assessment

Environmental scanning: The process of
gathering information and forecasting trends,
competitive actions, and circumstances that
will affect operations

Global, regional, national

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Environmental Scanning
Political instability
Example: Upheaval in the Middle East

Currency instability
Example: 1998 devaluation of the Mexican
Peso

Nationalism

International competition

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Sources of Environmental
Information

In the US there are more than 2000 business
information databases

Clipping services

Internal sources
Mitsubishi employees 60,000 market analysts

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Internal Analysis

Key success factors:
Technological capability: Microsoft
Distribution channels: Wal-Mart
Promotion capabilities: Disney

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Competitive Analysis

Distinctive competencies
Example: Sonys ability to miniaturize

SWOT analysis
Competitive position analysis

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Strategic Decision-Making
Models

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Global Strategy

Treating the world as an undifferentiated
worldwide marketplace

The impetus:
Regional trading blocs
Declining tariffs
Information technology explosion

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Regionalization/Localization

Local markets are linked together within a
region, allowing local responsiveness

The impetus:
Unique consumer preferences
Domestic subsidies
New production technologies

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Global Integrative Strategies

Full vertical and horizontal integration

Example: Dell
Factories in Ireland, Brazil, China, etc.
Assembly and delivery system from 47
locations around the world
Little inventory, ability to change operations
quickly

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E-Business for Global
Expansion

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E-global or E-local?

Going e-global makes sense when:
Trade is global in scope
Business does not involve delivering
orders
When the business model can be easily
hijacked by local competitors

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E-global or E-local?

Going e-local makes sense when:
Production and consumption are regional
in scope
Customer behavior and market structures
differ across regions, but are similar within
a region
Supply-chain management is very
important to success

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Entry Strategy Alternatives

Exporting
Jordan Toothbrush

Licensing
Anheuser-Busch

Franchising
Holiday Inn

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Entry Strategy Alternatives

Contract manufacturing
Nike

Offshoring
Toyota in the US

Service sector outsourcing
GE, Accenture, Oracle, Conseco

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Entry Strategy Alternatives

Turnkey operations
Fiat

Management contracts


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Entry Strategy Alternatives

International joint ventures
Mittal Steel of India and Arcelor of France

Wholly owned subsidiaries
Philip Morris and Jacob Suchard

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Comparative Management Focus:
Strategic Planning for the EU

In 2004 and 2007 the EU added 12 new
countries

The euro eliminates currency risk, but
cultures and tastes remain varied
UPS in Europe

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Comparative Management Focus:
Strategic Planning for the EU

Some believe the EU will adversely affect US
organizations by limiting access and/or
demanding reciprocal access to the US

Others feel the EU provides considerable
opportunity and many US companies are
well-established in Europe

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Comparative Management Focus:
Strategic Planning for the EU

Many companies use joint ventures to deal
with the EU strategic dilemma

Nonetheless, operating in Western Europe
can be cost prohibitive

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Strategic Choice

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Strategic Choice

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Timing Entry and Scheduling
Expansions

China and Japan have longer-term time
horizons than the US

High uncertainty avoidance cultures (e.g.,
Latin American, African countries) prefer non-
equity modes of entry

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Timing Entry and Scheduling
Expansions

High power distance cultures (e.g., Arab
countries and Japan) tend to use more equity
modes of entry abroad