INTERNATIONAL STRATEGIC ALLIANCES
ARIZONA STATE UNIVERSITY
OMT 440 - INTERNATIONAL BUSINESS
WEEK 3
CHAPTER OBJECTIVES:
After studying this chapter, you are expected to be able to :
a)
Explaining multinational companies
b)
Identify the benefits of strategic alliances.
c)
Identify the scope of strategic alliances
d)
Identify the implementation of strategic alliances
e)
Identify barriers to international strategic alliances.
Strategic alliances are formed in order to increase the competitive advantage of
companies involved in international business activities or activities. The existence of a global
cooperation agreement to establish a free market area (AFTA) encourages many external
parties or in this case Multi-National Corporations (MNCs) to invest in developing countries
that have advantages in terms of human resources and raw materials that are easily available
in the Southeast Asia region, especially Indonesia.
MULTINATIONAL COMPANIES
A multinational company is a company that is based in one country (parent country)
but has production or marketing activities in other countries (branch countries).
In the final decades of the 20th century, the rapid transformation of the industrialized
world took on a new form. The striking advances in science and technology, as the engine of
a society, affected the world from various angles. The economy was one of the areas that
underwent striking changes during these times. To be sure, the emergence of multinational
corporations has, to a certain extent, opened up opportunities for economic globalization.
The experience of economic growth in the nineteenth century in developed countries
stemmed largely from the rapid international movement of capital at that time. The mobility
of factors of production between countries culminated in the creation of multinational
corporations. Perhaps the most important development in international economic relations
over the past two decades has been the astonishing surge in the power and influence of
multinational corporations the influence of giant multinational corporations. They are the
main distributors of various factors of production, ranging from capital, labor and production
technology, all on a massive scale, from one country to another.
In their operations in third world countries, they run a wide variety of innovative and
complex business operations that we can no longer understand with the simple tools of trade
theories, let alone the distribution of profits. Giant corporations, such as IBM, Ford, Exon,
Philips, Hitachi, British Petroleum, Renault, Volkswagen, and Coca-Cola, have become so
globalized in their operations that calculating the distribution of profits generated by
international production to locals and foreigners has become increasingly difficult.
The flow of international financial resources can take two forms. The first is private
foreign investment and portfolio investment, mainly in the form of foreign direct investment
(FDI). This kind of investment can also be called Foreign Direct Investment (FDI). FDI or
foreign direct investment is one of the key features of an increasingly globalized economic
system. It starts when a company from one country makes a long-term investment in a
company in another country. This allows the company in the home country to partially or
fully control the company in the host country. This is done by the investor buying an existing
overseas company or providing capital to establish a new company there or buying at least
10% of its shares.
STRATEGIC ALLIANCE CONCEPT:
A strategic alliance is a formal relationship between two or more groups to achieve a
mutually agreed goal or meet certain critical business needs of each organization
independently. Strategic alliances generally occur within a certain time frame, and the parties
to the alliance are not direct competitors, but have similar products or services aimed at the
same target. By making an alliance, the parties involved must produce something better
through a transaction. Partners in alliances can provide a role in strategic alliances with
resources such as products, distribution channels, manufacturing capabilities, project funding,
knowledge, expertise or intellectual property. With alliances, there is cooperation or
collaboration with the aim of creating synergies.
A strategic alliance is a formal relationship between two or more groups to achieve a
mutually agreed goal or meet certain critical business needs that each organization requires
independently. This alliance strategy is carried out between different companies in various
fields of expertise as a mutually beneficial alliance and development of business
opportunities. In international business, it is not always easy to develop a company. This
means that doing business requires a strategy to increase international trade using technology
and developments that exist in the current era of globalization.
SCOPE OF STRATEGIC ALLIANCES:
Before the corporation conducts a strategic alliance with rakanan, internally the
corporation must make some preparations. This is done so that the alliance is successful.
Deep thinking about the structure and details of how the alliance will be managed needs to
consider the following in planning the alliance process. The corporation first defines the
expected outcome through the strategic alliance relationship, as well as determining what
elements each party can provide and the benefits that will be obtained. Corporations also
need to protect various intellectual property rights through several legal agreements and
agreements so that there is no adverse knowledge transfer process. Corporations must also
determine from the beginning what services or products will be run. For the successful
operation of the service or product, the corporation needs to examine the extent to which
there is compatibility of corporate culture in order to create a good level of trust. After
several studies have been carried out, the actual process of forming a strategic alliance is
through the following stages:
a. Strategy Development. At this stage, a study will be carried out on the feasibility of
alliances, goals and rationalization, selection of the main and challenging focus issues,
development of strategic resources to support production, technology, and human
resources. At this stage, the target is adjusted to the overall strategy of the company /
corporation.
b. Associate Assessment. This stage analyzes the potential partners to be engaged, both
strengths and weaknesses, creates strategies to accommodate all partner management
styles, prepares partner selection criteria, understands the partner's motivations in building
the alliance and clarifies the resource capability gaps that the partner is likely to incur.
c. Contract Negotiation. This stage includes determining whether all parties have realistic
goals, forming a negotiating team, defining each party's contribution and recognizing the
protection of important information, provisions for termination, penalties for poor
performance, and clear and understandable procedures for interaction.
d. Alliance Operationalization. Alliance operationalization includes affirming the
commitment of each party's senior management, determining the resources used for the
alliance, linking and aligning budgets and resources with strategic priorities, affirming the
performance and results of alliance activities.
e. Termination of Alliance. The alliance can be terminated under certain agreed conditions.
This is generally when goals are not achieved, or when the partner changes strategic
priorities, or reallocates resources to a different location.
TYPES OF STRATEGIC ALLIANCES
There are four types of strategic alliances, namely joint ventures, equity strategic alliances,
non-equity strategic alliances, and global strategic alliances.
a. A Joint Venture is a strategic alliance where two or more companies create an
independent, legal company to share resources and capabilities to develop a competitive
advantage.
b. Equity Strategic Alliance is a strategic alliance where two or more companies have
different percentages of ownership in a jointly formed company but combine all
resources and capabilities to develop a competitive advantage.
c. Nonequity Strategic Alliance is a strategic alliance where two or more companies have a
contractual relationship to use some of their unique resources and capabilities to develop
a competitive advantage.
d. Global Strategic Alliances are cooperative partnerships between two or more companies
across countries and across industries. Sometimes these alliances are formed between a
corporation (or several corporations) and a foreign government.
BARRIERS TO INTERNATIONAL STRATEGIC ALLIANCES:
Strategic alliances are a means for companies to internalize competencies or transfer
knowledge from partner companies. Knowledge transfer depends on how easily knowledge
can be transferred, interpreted and absorbed (Hamel et al., 1989).
In this process, Hedlund and Zander (in Simonin, 1999) emphasize the need to
consider the impact on knowledge, especially ambiguity, which is resistance to clear
communication, existence in context, and specificity. Reed and De Fillippi (1990) explain
that there are strong barriers to initiating imitation from competitors' inability to understand
competencies that are a source of competitive advantage.
Lippman and Rumelt (in Simonin, 1999) view causal ambiguity (in this case basic
ambiguity about the nature of the causal link between actions and outcomes): "Ambiguity as
to the factors responsible for superior performance (or poor performance) actions is a strong
barrier to factor mobility and imitation". Important in causal ambiguity is the lack of
understanding of the logical linkages between actions and outcomes, inputs and outputs,
causes and effects related to technology or process know-how (Simonin, 1999).
If causal ambiguity in the deployment of resources and skills that are sources of
competitive advantage creates barriers to imitation (Reed and DeFillippi, 1990), by extension
to the strategic alliance context, it will also reduce the propensity for learning from partners.
Thus, when the level of ambiguity associated with partner competencies is high, the
possibility of effective absorption and return of knowledge on competencies is more limited
(Simonin, 1999).
Furthermore, it is also explained that there are several multiple factors that determine
the level of ambiguity of knowledge transfer in strategic alliances. These factors are:
tacitness, asset specificity, complexity, experience, protectiveness, differences in
organizational culture between partners.
In the final decades of the 20th century, the rapid transformation of the industrialized
world took on a new form. The striking advances in science and technology, as the engine of
a society, affected the world from various angles. The economy was one of the areas that
underwent striking changes during these times. To be sure, the emergence of multinational
corporations has, to a certain extent, opened up opportunities for economic globalization.
A strategic alliance is a formal relationship between two or more groups to achieve a
mutually agreed goal or meet certain critical business needs of each organization
independently. Strategic alliances generally occur within a certain time frame, and the parties
to the alliance are not direct competitors, but have similar products or services aimed at the
same target. By making an alliance, the parties involved must produce something better
through a transaction. Partners in alliances can provide a role in strategic alliances with
resources such as products, distribution channels, manufacturing capabilities, project funding,
knowledge, expertise or intellectual property. With alliances, there is cooperation or
collaboration with the aim of creating synergies.
PRACTICE QUESTIONS
1. Explain what is meant by international strategic alliances?
2. Explain the advantages and disadvantages of international strategic alliances?
3. Explain the concept of international strategic alliances?
NESTLE GROUP DISCUSSION:
TEMPO.CO, Jakarta - Health Minister Nafsiah Mboi said, until now there are no
Nestle products in Indonesia that are known to be contaminated with horse meat. "The Food
and Drug Administration is researching now, whether there is (horse meat content)," Nafsiah
said at the State Palace complex, Jakarta, Tuesday, February 19, 2013.
According to Nafsiah, the discovery of traces of horse DNA in Nestle products is
new. Therefore, the POM Agency is conducting research to determine whether or not there is
horse meat in Nestle products. "If there is, of course it will be withdrawn (the product)," she
said. "But until now there is none." Nestle, the world's largest food company, recalled its food
products tainted with horse meat in Italy and Spain.
The move comes after tests showed traces of horse DNA in the products. The Swiss-
based company stopped shipping products containing the meat from suppliers in Germany.
Nestle is the latest in a line of major food manufacturers to find traces of horse meat in foods
labeled as beef. The horsemeat scandal, originally found only in the UK, is now spreading to
many European countries. A company spokesperson said the level of horse DNA found was
very low, but above 1 percent.
INTERNATIONAL BUSINESS MANAGEMENT
(International Business Management)
CHAPTER OBJECTIVES:
After studying this chapter, you are expected to be able to :
a)
Elaborate on foreign market analysis
b)
Outline strategies for entering overseas markets
c)
Explaining international licenses
d)
Explaining international franchising
International business management is very important if the company wants to excel in
global competition, with good management will cause the company's excellence to increase.
This management starts from analyzing the foreign market and then proceeds to
determine the strategy for entering the foreign market. After this is done, the company
determines the activities that will be carried out to enter the global market.
Foreign Market Analysis:
Foreign market analysis is a very important activity carried out by companies that want to
engage in international business activities. This market analysis consists of several activities,
including:
a)
Market Screening, which is a method of market analysis and assessment that allows
management to identify a small number of desirable markets by eliminating those that
are considered less attractive.
b)
Market Research, an activity conducted to determine potential market needs.
c)
Environmental Scanning, the company scans the world to observe changes in
environmental forces that will affect the company's existence.
The above activities will help management provide information on the various threats
and opportunities in the world.
Market screening can help two sets of companies: those that sell entirely in the
domestic market but believe they can increase their market share.
The company wants to increase its sales by expanding into foreign markets and
multinational companies but wants to ensure that changing conditions will not create markets
that the company's management is aware of. In market screening, the following types are
performed:
a)
State filtering, i.e. the use of the state as a basis for market selection
b)
Segment Screening, which is the use of market segments as the basis for market
selection.
In the market screening activity, the following processes are carried out:
a) First Screening Process
In this first screening process the basic potential need is assessed where if there is no need
then no reasonable sacrifice of effort and money will allow the company to market its goods
and services, in addition foreign trade and investment is based on the publication of various
industry trade data, many of which are published on the company's internet site. From this
first filter we can see that imports do not fully measure market potential. This is due to the
lack of foreign exchange, taxation and markup of project prices and political pressure.
b) Second Screening Process
1. Finance, such as inflation rates, exchange rates, interest rates, availability of loans,
consumers' paying habits and rates of return on similar investments
2. Market Indicators, where economic data serves as a benchmark to measure the relative
strength of markets in different geographical areas.
3. Market factors that tend to have a high correlation for a particular product.
4. Trend Analysis is a statistical technique or arithmetic average where subsequent
observations of a variable at regular time intervals are analyzed to obtain a regular
pattern that is used to predict the future.
5. Group Analysis and Other Techniques where marketers use group analysis to identify a
group of markets where one promotional approach can be used.
6. Periodic Updates. If the estimates change substantially in periodic updates of all long-
term forecasts, then management may change the extent to which the company will
engage in line with the new estimates.
c) Third Screening Process
This third screening process uses political and legal forces such as import quota
restrictions which will be positive if management is considering setting up a factory abroad
and negative if management wants to export. Management's considerations in investing
abroad are profit remittance constraints and policy stability.
d) Fourth Screening Process
The fourth screening process is done on the remaining candidates based on
sociocultural factors, which is very difficult because socioculture is very subjective and data
is difficult to collect remotely. What management really wants to know is which of these
countries will be the best prospects for the company's products.
e) Fifth Screening Process
This fifth filtering process includes :
a. Number, size and financial strength of competitors
b. Market share
c. Marketing strategy
d. Visible effectiveness of promotional programs
e. Quality level of product lines
f. Source of their products are imported or locally produced
g. Pricing policy
h. After-sales service level
i. Distribution channel
j. Market scope
OVERSEAS MARKET ENTRY STRATEGY:
Export - Import
Export is an activity of selling products made in one's own country for use or resale to
other countries. Importing, on the other hand, is buying products made in other countries for
use or resale in one's own country.
In export and import, there are two types of products that are traded, namely goods
and services. The difference between goods and services itself certainly lies in the tangible
and intangible of a product.
International Investment:
International investment is capital supplied by residents of one country to residents of
another. There are two categories of international investment, namely:
a)
Foreign Direct Investment. An investment made for the purpose of actively controlling
wealth, assets, or companies located in destination countries. The country where the
parent's head office is located is called the home country and any other country in which
the company operates is called the host country.
b)
Portfolio Investment. Portfolio Investment is the purchase of foreign financial assets
(stocks, bonds, certificates of deposit) for the purpose of out of control. The goal of this
portfolio investment is only financial gain, not to take full control of a company or
business in the destination country.
Other forms of international trade are:
A license is a contractual arrangement whereby a company in one country licenses the use of its
intellectual property (patent, trademark, brand name, copyright, or trade secret) to a company
in a second country for a royalty payment. Example: Coca Cola, Aqua, Fender Guitar.
Franchise, a special form of license, occurs when a company in one country (the franchisor)
authorizes a company in a second country (the franchisee) to use its operating system as well
as brand names, trademarks, and logos for a royalty payment. Examples: Mc Donald, Pizza
Hut, Burger King.
Management Contracts, Management contracts are agreements where a company in one
country agrees to operate facilities or provide other management services to a company in
another country for an agreed fee.
Turnkey project, A contract agreement where a company agrees to undertake the overall design,
construction, and building of a facility which is then handed over to the buyer when it is
ready for operation.
Joint ventures, Agreements between two or more companies to cooperate and establish joint
ownership separate from the parent company.
International License:
A license is the granting of intangible rights to a foreign company, which includes the
granting of processing rights, patents, programs, brands, copyrights, or expertise.
There are several advantages when a company licenses:
a)
The licensor receives additional benefits over sticking to a process or method in the
country
b)
Can expand the company's product life cycle
c)
Licensors experience increased sales on overseas parts changeovers
d)
The licensee will obtain processing and technology rights, reducing research and
development costs.
While some of the disadvantages that may occur due to the application of licenses are:
a)
The licensee may become a trade competitor
b)
The sale of branded goods is not well controlled
c)
Many counterfeit goods
d)
The quality of the products produced by the licensee is poor.
With a licensing agreement a licensee company grants another company the right to
use a type of expertise and the licensee pays a royalty during the contract period.
International Franchises:
International franchising is a strategic way to reduce dependence on domestic demand
and grow new, future revenue and profit centers around the world. Expanding a global brand
through franchising involves low risk, requires minimal investment and offers enormous
upside potential on increased capabilities. Here I look at what international franchising is, its
benefits, examples of companies that have successfully franchised internationally, how to
start franchising and where to look for additional help.
Franchising is the pooling of resources and capabilities to achieve strategic marketing,
distribution and sales objectives for a company. It typically involves a franchisor granting to
an individual or company (franchisee), the right to operate a business selling products or
services under a successful franchise business model and identified by the franchisor's
trademark or brand.
The franchisor requests an initial upfront fee for the franchisee, payable upon signing
the franchise agreement. Other fees such as marketing, advertising or royalties, may be
applied and are largely based on how the contract is negotiated and setup. Advertising,
training and other support services are provided by the franchisor. In addition to entering new
foreign markets with additional customers, international franchises can also offer so-called
foreign master franchisee owners. These people usually come from the country and
understand the political and bureaucratic issues in their country much better than outsiders.
Foreign master franchisors pay hefty upfront fees to acquire designated geographical
areas or, in some cases, entire countries where they operate as mini or sub-franchises of the
company, sell franchises, collect royalties, train owners and oversee all other related matters.
They can even open their own units. In general, a certain number of franchises must be
outlined for the exclusive right to use the business model throughout the country. Domino's
Pizza International Inc began serving consumers outside the United States in 1983 when the
first store opened in Winnipeg, Canada. Since then, Domino's Pizza International has
expanded its global reach to include more than 55 international markets served by more than
3,230 stores. Domino's Pizza's success outside the US is due to the collaborative relationship
between its exceptional franchisees and the corporate team that supports them. Together, we
continue to strive to support the 'One Brand-One System' policy to become the best pizza
delivery company in the world.
PRACTICE QUESTIONS:
1. Explain what is meant by international franchising?
2. Explain what is meant by an international license?
3. Explain how to strategize entering a foreign market?
4. Explain how to analyze overseas markets?
GROUP DISCUSSION:
Case
VIVAnews - In order to anticipate legal cases involving franchise businesses such as the case
of McDonald's versus Bambang Rachmadi, Bapepam-LK is considered necessary to
supervise. I propose Bapepam-LK to supervise franchises to anticipate that a case like
McDonald's will not happen again, because it is related to share ownership," said Kadin
Indonesia's Standing Committee on Franchising and Licensing Amir Karamoy in Jakarta,
Thursday, November 5, 2009. Kadin has proposed this to the government and is in the
process of sounding out the Minister of Trade as the franchising regulatory authority.
According to Amir, the case of McDonald's feud with Bambang Rachmadi due to the absence
of a clean break mechanism in the franchise agreement. "This means that the break
(termination of the agreement) must be clean or there are no lawsuits," he said. In fact, PP
No. 42 of 2007 has regulated the clean break mechanism. If there is a termination of the
franchise agreement, both parties are asked to agree. "So that if there is a dispute like that,
there is no need to go through court. Like franchising in the United States, it never goes to
court, but by arbitration or mediation through the association," he said. According to him,
such a mediation system in Indonesia has not fully run optimally.
INTERNATIONAL STRATEGIC MANAGEMENT:
(International Strategic Management)
CHAPTER OBJECTIVES:
After studying this chapter, you are expected to be able to :
a)
Explain the challenges of international strategic management
b)
Explain alternative international strategy options
c)
Formulate an international strategy
d)
Describe the different levels of international strategy.
e)
Explaining international alliance strategies
The growth of the world economy that leads to the era of globalization today has an
impact on the higher level of business competition between organizations operating at the
domestic, regional and international levels. International markets are becoming
unboundaries. Various international business strategies are formulated by each organization
so that business organizations (companies) are able to exist and dominate the international
market.
This chapter will discuss the meaning and importance of international strategic
management, various factors that affect international strategic management, various sources
of competitive advantage owned by the organization, various alternative strategic decision
options that can be taken by the organization, various components in international strategy,
steps in the international strategy mechanism, and various levels or levels that exist in
international strategy.
UNDERSTANDING AND IMPORTANCE THE ROLE OF INTERNATIONAL
STRATEGIC MANAGEMENT:
International strategic management according to Griffin and Pustay (2010:29) is a
business transaction between various parties from more than one country. These business
transactions include purchasing various goods in one country and sending them to another
country for processing or assembly, sending them back in the form of finished products to
another country for retail sale, building factories abroad to obtain lower labor costs, or
borrowing money from a bank in one country to finance operations in another country. The
parties involved in such transactions may be individuals, companies, groups of companies,
and/or government agencies.
Ball et al (2012:8) state that international business is a business activity whose
operations cross national boundaries. These activities include international trade, overseas
manufacturing operations, overseas service industries such as transportation, tourism,
advertising, construction, retail sales, wholesale trade, and mass communication.
Hill (2009:32) states that international business is a business activity carried out by
many companies that bind themselves to international trade and investment.
The various activities undertaken in international business are:
a)
Exports, the activity of selling products produced by a country for consumption or resale
in other countries.
b)
Imports, the activity of purchasing products produced by other countries for consumption
or resale in their own country.
c)
Foreign investments, which are investments by a country in another country. The form
of foreign investment can be in the form of foreign direct investment or foreign portfolio
investments. Direct investments abroad such as property, assets, factories, representative
offices, and so on. While overseas portfolio investments such as the purchase of overseas
financial assets such as stocks, bonds, certificates of deposit, and so on.
d)
International licensing, which is a contractual agreement where a company in a country
purchases a license to use intellectual property rights such as the use of patents,
trademarks, brand names, copyrights, and so on.
e)
International franchising, which is a special form of overseas licensing where a
company in one country acts as an authorizer (franchisor) for another company abroad
(franchisee) to use the franchisor's operating system including the brand name,
trademark, and logo of the franchisor company by paying royalties to the franchisor
company.
f)
International management contracts, which are contractual agreements in which a
company in one country agrees to operate facilities or provide managerial services to a
company in another country in exchange for payments agreed upon in the management
contract agreement.
g)
International manufacturing contracts, which are contractual agreements whereby a
manufacturing company in one country outsources part or all of its manufacturing
process to another company abroad.
h)
Turnkey project, which is a contract agreement where a company agrees to do the
overall design, construction, and maintenance of the project builds the facility which is
then handed over to the buyer when it is ready for operation.
i)
Joint ventures, which are agreements between two or more companies to cooperate and
establish joint ownership separate from the parent company.
The organizational form of international business is the multinational corporation
(multi-national corporation), which is a company that involves itself in various international
businesses in the form of direct investment abroad and has control over various value-added
activities in more than one country.
In international business, the company will conduct a comprehensive managerial
planning process to formulate and implement its international strategy so that the company is
able to compete in international business effectively. The result of the formulation of
international strategic management is the development of various international strategic plans
within the scope of a comprehensive international business in achieving the vision and
mission of the international company.
Conceptually, there are many similarities between the development of competitive strategies
within a country (domestic) and multi-country (international). Both formulate business
strategies at various levels or levels of business strategy by prioritizing their competitive
advantages. The difference is in the scope of the business it faces. In domestic companies, the
development of competitive strategies is focused on how the company can exist and dominate
the domestic market. However, in international companies, the development of competitive
strategies is more focused on how international companies develop their domestic markets
and foreign markets and dominate international markets.
Griffin and Pustay (2010:29) state that international business is different from domestic
business in several ways, namely:
a)
International business involves many countries, so it will involve many different
currencies. Therefore, it is necessary to set the exchange rate of one currency against
another.
b)
Different legal systems in different countries make it necessary to adapt business
practices to the legal system in each country.
c)
The culture of each country is different, so it is necessary to adapt to the prevailing
culture in each country.
d)
The availability of resources (natural resources, human resources, technology) is
different in each country, so the products to be produced are different in each country.
International strategic planning is a process of developing a specific international business
strategy to penetrate international markets and compete in international markets. International
strategic planning is the responsibility of top management executives at international
corporate headquarters and senior managers at domestic offices and branch offices in various
countries. Almost all large companies have international business planners on staff to provide
technical assistance to top management as they plan international business strategies.
The fundamental questions used by an international company in determining whether
to compete in international markets are:
a)
What products will the international company sell? An international company should focus
on its comparative advantage and/or competitive advantage of its products in the international
market. The distinctive competence of its products will make the company's products able to
compete or not in the international market.
b)
Where and how will the product be made? International companies must consider the
economies of scale of their production in order to have a competitive selling price in the
international market. Companies tend to choose countries with lower investment costs,
logistics costs, and production costs so that they can operate more efficiently.
c)
Where and how will the product be sold? International companies must consider market
strategies that include market segmentation strategies (segmenting), targeting consumer
determination strategies (targeting), as well as determining the position of the target market
(positioning). International companies will tend to choose countries where people are
consumptive of foreign products, have high financial purchasing power, and have low
product standard regulations as target markets for selling their products.
d)
Where and how can it fulfill its resource needs to manufacture the product? An international
company must consider the resources available to make its product in the countries where it
will operate. International companies tend to choose countries that are rich in natural
resources for raw materials and raw materials for their products, rich in energy resources to
carry out the production process, and rich in human resources as labor in producing their
products.
e)
How can the product exceed the performance of its competitors? International companies
need to analyze the performance of competing products that have already established
themselves in their target markets. If the international company is able to outperform the
product performance of its competitors either from advantages over product differentiation,
and/or cost advantages, and/or product quality advantages, the international company is able
to become the market leader in that country.
FACTORS INFLUENCING INTERNATIONAL STRATEGIC DECISIONS:
Various factors that can affect international strategic management include domestic
factors and international factors. What is meant by domestic factors are factors originating
from within a country that can affect the international strategic decisions of business
organizations that will enter the market of the business destination country. While what is
meant by international factors are factors originating from the international environment that
can affect the international strategic decisions of business organizations that will dominate
the international market.
Domestic factors that influence international strategic management include:
government regulations, currency, standard accounting system, political will and legal
system, and the nation's culture and language, which tend to be comparatively homogenous.
While international factors that affect international strategic management include: the
involvement of many governments from various countries (many governments), involving
many currencies (many currencies), involving many accounting systems (many accounting
systems), involving many legal and political systems (many political and legal systems), as
well as the diversity of cultures and languages from various countries (many cultures and
languages).
The factors that influence international strategic decisions can generally be mentioned as
follows:
a)
Language. The language factor influences the strategic decision to enter a country's
market. It will be easier to enter the market of a country whose national language is
included in international languages such as English and French considering that these
two countries have the largest colonies in the world so that the colonized countries use
these two languages.
b)
Culture. Cultural factors will influence the strategic decisions of international
companies that will operate in a country. An example of Indonesian culture in facing the
fasting month by breaking the fast with family which results in a reduction in working
hours during the fasting month.
c)
Politics. Political stability factors will have a particular influence on the direct
investment decisions of international companies abroad. If the country of investment
does not have political stability (e.g. civil war or tribal war or military coup, etc.) then
international companies tend to be reluctant to invest in that country.
d)
Economic. Economic factors such as national economic growth will influence the
strategic decision of international companies to enter a country's market. High economic
growth indicates the purchasing power of a country's people is getting better, so it can be
used as a potential market for international companies that will sell their products.
e)
Government interference. Government interference factors will also affect the strategic
decisions of international companies such as overly dominant government interference
that does not provide flexibility for international companies to operate will have an
impact on limiting foreign investment. Examples are government interference in limiting
foreign franchise companies operating in a country, quota restrictions on certain
imported goods, imposing complicated bureaucracy and setting high taxes on foreign
investment, and so on.
f)
Labor. Labor factors also determine the strategic decision for international companies to
invest and operate in a country in the form of cheap labor payments, security stability
and a conducive working environment. International companies tend to shift their
investments and operations to countries with cheaper labor, security and a better working
environment.
g)
Industrial/labor relations. Industrial or labor relations factors regulated in labor laws or
labor laws will also affect the strategic decisions of international companies such as the
enactment of labor unions, provisions for termination of employment or layoffs, and so
on.
h)
Financial financing. Financial financing factors also influence the strategic decisions of
international companies such as the ease of obtaining loans to fund the operations of
international companies, low interest rates on loans, adequate payment transaction
system facilities, and so on.
SOURCES OF COMPETITIVE ADVANTAGE:
The sources of competitive advantage that a company can have to compete in international
markets include:
a)
Global efficiencies. What is meant by global efficiency is the ability of a company to
determine efficient locations (both branch offices and factories) in various countries,
determine the economies of scale of production, and the range of economies of scale in
reaching international markets. The company must be able to determine the location of
its branch offices and factory locations in the destination country efficiently so as to
minimize production costs based on proximity to markets and production resources (such
as raw materials, raw materials, labor availability, etc.) in the destination country as its
international market. In addition, the company must be able to determine the minimum
number of mass-produced units in order to meet the economies of scale of production
efficiently, and must be able to determine the economic reach of the market it will enter
efficiently by taking into account the purchasing power of consumers in the country, the
conditions of import duties and taxes in the country, transportation costs, and so on in
order to achieve maximum profits.
b)
Multinational flexibility. What is meant by multinational flexibility is the company's
ability to enter markets in various countries by taking into account differences in the
political, economic, legal and cultural environment and its recent changes. Flexibility is
absolutely necessary for a company to operate in the destination country. Flexibility is
built through various adjustments/adaptations to various factors that affect international
strategic management such as language, culture, law and politics, government
intervention, labor laws, and so on that apply in the destination country as the
international market.
c)
Worldwide learning. What is meant by worldwide learning is learning that is worldwide
(applies almost all over the world) that can be obtained by companies engaged in
international business markets. Learning that there are worldwide legal differences where
not all company products can be sold freely in various countries, such as cigarette
companies must comply with cigarette duties and excise, tar and nicotine levels, and so
on that apply in each country. Another lesson learned is that there are differences in the
operating environment in each country, such as not all countries have steel resources as
raw materials for car production.
ALTERNATIVE STRATEGIC DECISION OPTIONS
Alternative strategic decision options include:
a)
Home Replication Strategy. This strategy is built by utilizing certain core competencies
or advantages developed in the country (domestic market) as the main competitive
weapon in the foreign market entered by basing on what advantages are owned that are
very good in the domestic market and trying to duplicate them in the foreign market.
b)
Multidomestic Strategy. The collection of independent operating subsidiaries focusing
on specific domestic markets. Each subsidiary is free to customize its products, conduct
marketing campaigns, and implement various operating techniques to meet the needs of
local customers. A multidomestic approach is effective when there is a clear distinction
between national markets when economies of scale in production, distribution and
marketing are low; and when coordination costs between the parent company and various
foreign subsidiaries are high.
c)
Global Strategy. It sees the world as a single market and has the main goal of
establishing product standards that will meet the needs of customers around the world. A
global strategy is almost the opposite of a multidomestic strategy.
d)
Transnational Strategy. Combines the efficiency benefits of global scale of a global
firm, with the local advantages and advantages of a multidomestic firm.
Companies should pay special attention to local country conditions when :
a)
Consumer tastes or preferences vary across countries,
b)
there are major differences in local laws, economic conditions and infrastructure
c)
host country governments play a major role in certain industries.
The pressure for global integration arises when:
a)
The company sells standardized commodities with little ability to differentiate its
products through features or quality,
b)
If trade barriers and transportation costs are low, companies should produce their goods
at the lowest possible cost.
Meanwhile, the pressure of global integration will be reduced if:
a)
Product features among desirable consumers vary by country,
b)
companies are able to differentiate their products through brand names, after-sales
service support, and quality differences.
COMPONENTS OF INTERNATIONAL STRATEGY:
The four basic components of strategy development are:
a) Distinctive competence
By differentiating advantage, we mean advantages such as advanced technology, efficient
distribution networks, superior organizational practices, or respected brand names.
Without unique competencies, a foreign company will have difficulty competing with
local companies that are perceived to know the local market better. Specialized
competencies represent a firm's critical resources. International strategy reflects the
interaction between specialized competencies and the business opportunities available in
different countries. Capitalizing on such advantages by expanding its operations to as
many markets as resources allow.
b) Scope of operations
The scope of operations may include: (1) Geographical area. Scope can be defined in
terms of geographical regions, countries, regions of countries, and/or groups of countries,
(2) Market or product niches within regions. Focusing on niche markets or products within
one or more regions, such as premium quality niche markets, low-cost niche markets or
other specialized niche markets. Since all companies have limited resources and since
markets differ in attractiveness for various products, managers must decide which markets
are most attractive to their company, (3) Niche markets. Scope is tied to the company's
specialized competencies: if the company has unique competencies only in certain regions
or in certain product lines, then the scope of operations will focus on those areas where the
company has specialized competencies.
c) Resource deployment
Companies make specific resource allocations of resources through product lines,
geographic lines, and product and geographic lines. This is part of strategic planning that
determines the company's relative prioritization of limited resources.
d) Synergy
How can the different elements of a business enterprise benefit each other? The goal of
synergy is to create a situation where the whole is greater than the sum of its parts.
INTERNATIONAL STRATEGY DEVELOPMENT:
International strategic management in two stages:
(1) Strategy formulation:
a)
decide what to do,
b)
set objectives and strategic plans that will lead to the achievement of those objectives,
c)
develop, refine, and agree on the markets to enter (or exit) and how best to compete in
each of those markets.
(2) Strategy implementation:
a)
actually do it,
b)
develop tactics to achieve the formulated international strategy,
c)
usually achieved through: organizational design, employee employment, process and
control systems.
Steps in formulating a strategy:
a)
Develop a mission statement. A mission statement: (a) describes the organization's
purpose, values, direction, (b) communicates the strategic direction of the company
(internally and externally to constituents and stakeholders), (c): defines target customers
and markets, product or service owners, geographic domain, core technology, survival
concerns, plans for growth and profitability, basic philosophy, and desired public image.
Multinational companies may have multiple mission statements (one for the whole
company and one for each foreign subsidiary.
b)
Conduct a SWOT analysis. SWOT: 'strengths (S), weaknesses (Weakness/W),
opportunities (Opportunity/O), and threats (Threat/T).' Start the SWOT analysis by
conducting an environmental scan. An environmental scan is the collection of data on all
elements of the company's external (opportunities and threats) and internal environment
(strengths and weaknesses) such as: markets, regulatory issues, competitors' actions,
production costs and labor productivity. Strengths include the skills, resources and other
advantages the firm has relative to its competitors, potential strengths that form the basis
for the firm's specialized competencies, availability of abundant managerial talent,
cutting-edge technology, well-known brand names, cash surpluses, good public image
and strong stock markets in key countries. Organizational weaknesses include
deficiencies in skills, resources, or other factors that hamper the firm's competitiveness,
poor distribution networks outside the domestic market, poor labor relations, lack of
skilled international managers, or product development efforts that lag behind
competitors. Opportunities include data on economic, financial, political, legal, social,
and competitive changes in the various markets it may wish to serve. Threats include
shrinking markets, increased competition, the potential for new government regulations,
political instability in key markets, new technological developments that could render a
company's manufacturing facilities or product lines obsolete.
c)
Setting strategic objectives. Strategic objectives are the main goals of the company to
be achieved through specific actions. Strategic objectives should be measurable, feasible
and time-limited (answering the questions 'how much, how, by whom and when?').
Strategic goals (with mission statement and SWOT analysis) are listed in the strategic
planning framework.
d)
Develop tactical objectives and plans. Focus on the detailed implementation of the
company's strategic objectives in relation to middle management issues and
implementation details such as employee recruitment, compensation, career paths,
distribution and logistics.
e)
Develop a control framework. The control framework is a set of managerial and
organizational processes that continuously move towards the company's strategic goals.
Each set of responses comes from a control framework that is built to keep the company
on course. The control framework may call for revisions in any of the previous steps in
the strategy formulation process.
LEVELS OF INTERNATIONAL STRATEGY:
The complexity of international strategic management requires the development of
strategies for three different levels within the organization. The levels of international
strategy can be categorized as follows:
a)
Corporate strategies include: single-business strategy, related diversification strategy,
and unrelated diversification strategy. By single-business strategy, we mean a company that
relies on a single business, product, or service for all of its revenue. A significant advantage
of this strategy is that it can concentrate all of its resources and expertise on a single product
or service. It also increases the company's risk/vulnerability to its competitors and changes in
the external environment. What is meant by diversification strategy related to the company's
core business is that the company operates in several different but basically related
businesses, industries, or markets at the same time where this strategy allows the company to
increase its unique competence in one market to strengthen its competitiveness. Whereas
what is meant by a diversification strategy that is not related to the company's core business
is that the company operates in several industries and markets that are not related to each
other.
b)
Business strategy includes: differentiation strategy, cost leadership strategy, and focus
strategy. What is meant by differentiation strategy is building and maintaining a real or
perceived image that the product or service is essentially unique from other products or
services in the same market segment. What is meant by a cost leadership strategy is a focus
on achieving highly efficient operating procedures so that the costs are lower than its
competitors which makes it possible to sell goods or services at lower prices where a
successful cost leadership strategy can result in a unit level of profitability due to lower prices
but higher total profits due to lower sales volume increases. Meanwhile, what is meant by a
focus strategy is the target of each type of product specifically for certain customer groups or
regions which allows companies to match the features of certain products to the needs of
certain consumer groups where these groups are characterized by geographic area, ethnicity,
purchasing power, taste / fashion or other factors that influence their buying patterns.
c)
Functional strategies include: finance, marketing, operations, HR management, and
R&D. Financial strategy develops financial strategies for the company as a whole as well as
for each SBU dealing with capital structure, investment policy, foreign exchange holdings,
risk reduction techniques, debt policy, and working capital management. Marketing strategy
focuses on the distribution and sale of the company's products or services such as product
mix, advertising, promotion, pricing, and distribution. Operations strategy deals with
The human resources strategy focuses on the people who work for an organization
such as guiding decisions regarding how the company will recruit, train, and evaluate
employees and what it will pay them, as well as how it will deal with labor relations. Human
resource strategy focuses on the people who work for an organization such as guiding
decisions regarding how the company will recruit, train, and evaluate employees and what it
will pay them, as well as how it will deal with employment relations. R&D strategy deals
with the magnitude and direction of the company's investment in creating new products and
developing new technologies.
SUMMARY:
International strategic management is a comprehensive management planning process
to formulate and implement strategies so that companies can compete internationally
effectively. The result of the formulation of international strategic management is the
development of various strategic plans, the development of various international strategic
plans, and a comprehensive business framework/scope in achieving various corporate goals.
Factors that influence international strategic management include domestic factors
and international factors. Domestic factors include: the government in which the company
operates, the currency of the country, the prevailing accounting system, the prevailing legal
and political system, language and culture that tend to be comparatively homogenous. While
international factors include: the involvement of many governments from various countries,
involving many currencies, involving many accounting systems, involving many legal and
political systems, and cultural and linguistic diversity of various countries.
The sources of competitive advantage that a firm can have to compete in international
markets include: global efficiency, multinational flexibility, and global learning.
The four basic components of strategy development are: distinctive competence, scope of
operations, resource deployment, and synergy.
Alternative strategic decisions include: home replication strategy, multidomestic
strategy, global strategy, and transnational strategy.
International strategic management is in two stages: strategy formulation and strategy
implementation. Steps in formulating strategy: developing a mission statement, conducting a
SWOT analysis, setting strategic goals, developing tactical objectives and plans, and
developing a control framework.
The levels of international strategy can be categorized as follows: corporate strategy
which includes single-business strategy, related diversification strategy, and unrelated
diversification strategy; business strategy which includes differentiation strategy, cost
leadership strategy, and focus strategy; and functional strategy which includes finance,
marketing, operations, HR management, and R&D.
PRACTICE QUESTIONS:
1.
What is international strategic management?
2.
What are the fundamental considerations for entering the international market?
3.
List the internal and external factors that influence international strategic management?
4.
Explain the sources of competitive advantage to enter international markets?
5.
Describe the four basic components of international business strategy development?
6.
Describe the various alternatives to international business strategic decisions?
7.
Describe the stages of international business strategy formulation?
8.
Explain what is meant by SWOT analysis?
9.
Explain the difference between strategic planning and tactical planning?
10.
Describe the levels of international strategy?
GROUP DISCUSSION
Case 1:
Toyota's Strategy to Survive in the Indonesian Market:
Year-on-year, Toyota's growth has been stable. Its market share in Indonesia remains in the
range of 34-35%. Although this year the competitors are getting more crowded, Toyota Astra
Motor actually responded positively to this. For Toyota, the crowd of competitors, the
number of new variants, and the increasing production capacity are good things for the
development of the automotive industry in Indonesia.
Toyota is not concerned about MPV sales declining in the market because it realizes
that there are more variants of cars in circulation. Now, consumers are using more
hatchbacks, such as Yaris and Agya. However, this is not solely due to changing tastes, but
rather the demands of consumer needs.
Toyota's three main strategies are product, service, and network. Toyota received the
Silver Champion of Indonesia Wow Brand 2014. Toyota products are always tailored to the
needs of the community, both short-term and long-term needs. Regarding service, Toyota
provides complete services from new and used car sales, after-sales, service, to insurance. All
of these services are used to maintain consumer trust in Toyota products.
In addition, the network spread throughout Indonesia is intended to make Toyota
close to its customers. There are 265 branches spread throughout Indonesia. This success is
due to Toyota's principle of getting close to consumers. Toyota is also optimistic that it can
survive in the Indonesian market, because consumers have recognized and trusted its
products.
Case 2:
The Coca Cola Company's Organizational Culture:
How is it possible for The Coca Cola Company to expand its activities in 189
countries? The basis for developing business in 189 countries with scattered demographics is
to build a corporate culture that is maintained by the employees themselves. The company
belongs to all employees so that the involvement of forming a good and strong culture will be
able to create good performance in the company. Corporate culture is convinced to
employees which is a set of values, norms and beliefs agreed upon and believed by all
employees of a company, which can be reflected in the behavior and policies of the company.
This corporate culture is emphasized to be able to shape the character and identity of the
company, and become a means to distinguish it from other companies.
The company must be able to increase and bind public trust in various countries with
various cultural types regarding the existence of the company, so that the company is able to
take a cultural approach and its employees must be active in the surrounding environment to
place public trust in the Coca Cola company. All of this is because Cola Cola's corporate
identity has been strongly built, thanks to Coca Cola's corporate culture that can no longer be
shaken (high-intensity and strong culture). Another illustration of the need to create a
corporate culture is no longer just holding on to family control alone or in other terms called
run by the family, but there comes a time when professionals are needed to control the wheels
of the company. This is because business is getting bigger, and this requires other thoughts
for the continuation of the company, and it is realized how necessary professionalism is, for
example in terms of placing someone in the right position according to qualifications and on
time.
Companies must be able to make product adjustments so that they can be accepted
among people in various countries, for example, if the majority of countries such as Indonesia
are predominantly Muslim so that they reject products that are alcoholic, coca-cola products
will not produce drinks containing alcohol, because if they violate it, they will certainly
experience licensing problems. Maybe it will be different if in another country that allows the
desired product to be alcoholic then in that country will be produced the desired drink. These
efforts must always be accommodated by the company so that it must approach the culture
where the country becomes the company's operating land and the culture must become a
corporate culture to be more adaptive to the surrounding environment.
