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Strategic Directions-formal and informal

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Discuss the ways in which managers arrive at new strategic directions-formal and informal. Which is the best?

The first phase of a strategic formulation process is the planning phase. A statement of missions and objectives is developed which charts the direction of the company and provides the groundwork for subsequent strategic processes. The objectives of a company evolve from the stated mission. After the mission and objectives are completed, a company must develop an environmental assessment, which will entail collecting and compiling necessary geographic data as well as forecasting trends and actions by the competition. The next step involves an internal analysis, which determines the strengths and weaknesses of the firm’s financial and managerial expertise compared to that of its competitors. This analysis focuses on the company’s resources and operations.

Next, company managers must ascertain the relative and potential competitive position of firms in that market or location. This will enable their company to identify potential problems, which need correcting or the need to eliminate consideration of other strategies. The next major step in the strategic planning process considers the advantages and disadvantages of various strategic alternatives. The two levels are the overall approach to the global marketplace and the specific entry strategy appropriate for each country considered.

3) Explain the process of environmental assessment. What are the major international variables to consider in the scanning process? Discuss the levels of environmental monitoring that should be conducted. How well do you think managers conduct environmental assessment?

Environmental assessment is a major step in weighing international strategic options. The list of variables to consider during the environmental scanning process include the following:

a) Political instability- such matters as war, political unrest and terrorist activity could jeopardize the ownership or viability of a foreign business.

b) Currency instability- Inflation and fluctuations in exchange rates can affect the profitability of overseas operations.

c) Nationalism- The host country’s goals for independence can adversely affect expatriate companies by using competitive and protectionist practices such as insufficient patent protection, and trade restrictions.

d) International competition- Such matters as the other country’s infrastructure to support new competition, profit potential, and level of supply and demand for products have to be considered when doing business elsewhere.

The levels of environmental monitoring should include multinational, regional, and national. The multinational analysis provides a broad assessment of worldwide trends, economic, political and technological. The regional level analysis focuses on environmental factors to identify opportunities and risks for marketing goods or services. The national level of investigation would assess the size and nature of the market, along with any operational problems. How well these assessments serve a company depends on the quality of specific information provided about potential markets. Secondary sources are often inferior to first-hand sources within a company. Companies with their own market analysts are more successful than those who outsource the information.

4) How can managers assess the potential relative competitive position of their firm in order to decide on new strategic directions?

An internal analysis is conducted which focuses on the strengths and weaknesses of a firm’s managerial and financial expertise compared to that of its competition. This will determine the company’s ability to evaluate how well they can exploit foreign opportunities. Diagnostic tools toward this effort involve identifying KSFs or key success factors and conducting an internal resource audit to determine whether to venture into a foreign market or continue operations abroad. The relative current and potential position of firms in that market or location must be evaluated. A SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis must be conducted to assess the firm’s capabilities in relations to that of its competitors. Companies must develop their strategy around key strengths or core competencies. Their weaknesses must also be assessed. Poor judgment based on subjective reasoning must be avoided by acting on objective information.

5) Discuss the relative advantages of globalization versus regionalization. What are the relative merits of the entry strategies discussed in this chapter? What is their role in an integrative global strategy?

Globalization refers to the establishment of worldwide operations and the development of standardized products and marketing. Companies are pushed to go global due to regional trading blocks, declining tariffs, the opportunity to open up new markets, and to take advantage of the information technology boom. E-commerce, in particular, has produced a commonality of taste worldwide and permitted instantaneous global marketing possible. Globalization has fostered and been aided by strategic alliances of rivals, suppliers and customers.

The drawbacks to globalization are the riskier nature of going global due to the divergent needs of different cultures, the loss of a company’s identity with its home country, a loss of flexibility and responsiveness, as well as the neglect of the need for differentiated products. Regionalization, then, would be less risky, more manageable, and have the ability to take advantage of local competencies. It has been favored over globalization by pressures of consumer preferences based on cultural or national differences. Domestic subsidies and new production technologies serve as enticements for regionalization. Companies often try to go global, yet act local to take advantage of each mode of entry into the marketplace.

The entry strategies and their merits include the following:

a) Exporting-This is a low-risk venture which is a good way to test the overseas market; however, many countries have regulations which make it difficult to remove an inefficient distributor. Other problems include export-import tariffs and quotas, freight costs, and distance from suppliers.

b) Licensing- this gives the host country the right to use a foreign company’s patents, trademarks, and technology for a specified period of time in exchange for a fee. This low-risk agreement requires little in the way of investment and is a good alternative when restrictions prohibit other market ventures. It also avoids tariffs and quotas. Considerations include whether there is sufficient trademark and patent protection, the quality of previous dealings with the host country, and the possibility of the licensee turning into a competitor.

c) Contract manufacturing- this is a common means to take advantage of cheap labor overseas and requires little capital investment. The goods are then shipped back to the foreign company for sale or can be sold in the host country. To be successful, managers must ensure the reliability and quality of the local contractor and work out an adequate repatriation of capital repatriation.

d) Management contracts- this “turnkey” operation involves a company being paid by the host country to design and develop a business or other venture and then turning over the business to the locals to manage. If this is done with the government of the country, there are greater risks such as contract revocation and the rescission of bank guarantees.

e) International joint ventures- this agreement between two companies to produce a product or service together involves considerable investment and risk. The advantages of such an operation are that it overcomes trade barriers, facilitates rapid entry into the host county, and provides an increased economy of scale, a strong competitive edge, additional raw materials and less vulnerability to risks in the host country. Unfortunately, sixty per-cent of these joint ventures fail because not enough planning was involved to ensure a “fit” between the partners as pertains to common strategies and objectives, control issues, and administration of the business.

f) Fully owned subsidiaries- An MNC may start its company from scratch or take over an existing firm in the host country. With acquisition of a host site company, an MNC is assured a rapid entry due to the established product and distribution networks. This advantage balances the heavier investment involved with this strategy. When the MNC starts from scratch, a host of risks are inherent such as political instability, attitudes toward foreign investment, currency instability and repatriation issues, to name a few. However, the company maintains a tighter control over its operations.

6) Discuss the considerations in strategic choice, including the typical stages of the MNC and the need for a long-term global perspective.

Entry-level strategies will depend on other critical factors such as the following:

a) Firm factors- These include international experience, core competencies and capabilities, the firm’s national culture, as well as the firm’s strategy, goals, and motivation.

b) Industry factors- such factors includes industry growth rate, technology, and the extent of globalization in the industry.

c) Location factors- these take into accounts the country’s risk factors, cultural distance, potential and competition of the local market.

d) Venture-specific factors- tacit knowledge of the venture, the extent to which it will be researched and developed with partners, and consideration of cost and size of venture affect choices.

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