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Alan M Rugman and Simon Collinson, International Business, 5th
Edition, © Pearson Education Limited 2009
Multinational strategy
Chapter 8

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Multinational strategy
• Objectives
• Introduction
• Strategic orientations
• Strategic formulation
• Strategic implementation
• Control and evaluation.

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Objectives
• Define the term strategic planning and discuss
the strategic orientations that affect this planning
process.
• Explain how strategy is formulated, giving
particular emphasis to external and internal
environmental assessment.
• Describe how strategy is implemented, with
particular attention to location, ownership
decisions and functional area implementation.
• Discuss the ways in which MNEs control and
evaluate their strategies.

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Introduction
• The FSA and CSA framework is related to the
special nature of strategic management.
– Cell 1 will build competitive advantages due to its
home country CSAs.
– Cell 4 can best be described by the resource-
based view (RBV) of strategy.
– Cell 3 is where country and firm effects are
combined requiring the integration of firm and
country advantages in a sustainable and long-
run manner.

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• Strategic planning: the process of evaluating
the enterprise’s environment and its internal
strengths, identifying long- and short-range
objectives and implementing a plan of action for
attaining these goals.
Introduction (Continued)

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Strategic orientations

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• Ethnocentric predisposition: the tendency of a
manager or multinational company to rely on the
values and interests of the parent company in
formulating and implementing the strategic plan.
• Polycentric predisposition: the tendency of a
multinational to tailor its strategic plan to meet the
needs of the local culture.
• Regiocentric predisposition: the tendency of a
multinational to use a strategy that addresses
both local and regional needs.
• Geocentric predisposition: the tendency of a
multinational to construct its strategic plan with a
global view of operations.
Strategic orientations

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Table 8.1 Typical strategic orientations of MNEs
Source: Adapted from “Strategic Planning for a Global Business” Columbia Journal of World Business, Summer 1985 Copyright © Elsevier Science & Technology Journals, permission
conveyed through Copyright Clearance Center, Inc (Chakravarthy, B.S and Perlmutter, H.V)

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Strategic formulation

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Strategy formulation
• Strategic formulation: the process of evaluating
the enterprise’s environment (opportunities) and
its internal strengths (resources).
• External environmental assessment:
– information gathering;
– information assessment.
• Internal environmental assessment:
– physical resources and personnel competencies;
– value chain analysis.

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Conducting an environmental scan
• Four of the most common methods for
conducting an environmental scan are:
– Asking experts in the industry to discuss industry
trends and to make projections about the future.
– Using historical industry trends to forecast future
developments.
– Asking knowledgeable managers to write
scenarios describing what they foresee for the
industry over the next two to three years.
– Using computers to simulate the industry
environment and to generate likely future
developments.

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Examining the five forces that
determine industry competitiveness
• One of the most common approaches to make
an overall evaluation is based on the five
forces that determine industry competitiveness:
– buyers
– suppliers
– potential new entrants to the industry
– the availability of substitute goods and services
– rivalry among the competitors.

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Figure 8.2 The five-forces model applied to the semiconductor industry
Source: Scott Beardsley and Kinji Sakagami, “Advanced Micro Devices: Poised for Chip Greatness,” Unpublished student paper, Sloan School of Management, MIT, 1988. Reported in
Arnoldo C. Hax and Nicolas S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (Englewood Cliffs, NJ: Prentice Hall, 1991), p. 46

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Internal environmental assessment
• Internal environmental assessment helps to
pinpoint MNE strengths and weaknesses.
• There are two specific areas the MNE will
examine in this assessment:
– physical resources and personnel
competitiveness;
– the way in which value chain analysis can be used
to bring these resources together in the most
synergistic and profitable manner.

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Physical resources
and personnel competencies
• The physical resources are the assets the MNE
will use to carry out its strategic plan.
• The degree of integration that exists within the
operating units of the MNE.
– Vertical integration: To obtain control over the
supply and to reduce costs.
– Virtual integration: A networking strategy based on
cooperation.
• Personnel competencies are the abilities and
talents of the people.

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Value chain analysis
• Value chain: The way in which primary and
support activities are combined.
– Primary activities: inbound logistics, operations,
outbound logistics, marketing & sales and service.
– Support activities: firm infrastructure, HRM,
technology management and procurement.
• Analysis of the value chain can also help a
company to determine the type of strategy that
will be most effective.

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Figure 8.4 The value chain for IBM
Source: Reported in Arnoldo C. Hax and Nicolas S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (Englewood Cliffs, NJ: Prentice Hall, 1991), p. 82

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Three generic strategies
• Cost strategy: A strategy that relies on low price
through the pursuit of cost reductions
• Differentiation strategy: A strategy directed
toward creating something that is perceived as
being unique
• Focus strategy: A strategy that concentrates on a
particular buyer group and segments

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Strategy implementation

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Strategy implementation
• Strategy implementation is the process of
attaining goals by using the organizational
structure to execute the formulated strategy
properly.

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• There are many areas of focus in this process,
some of the most important are:
– Location
– Ownership decisions
 A strategic alliance is an agreement between two
or more competitive MNEs for the purpose of
serving a global market.
 An international joint venture (IJV) is an
agreement between two or more partners to own
and control an overseas business (setting up a new
business entity).
– Functional area implementation
 Marketing, manufacturing, finance, procurement,
technology and human resources.
Strategy implementation (Continued)

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Control and evaluation

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• The strategy formulation and implementation
processes are a prelude to control and
evaluation.
• This process involves an examination of the
MNE’s performance for the purpose of
determining:
– how well the organization has done;
– what actions should be taken in the light of this
performance.
Control and evaluation

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Common methods of measurement
• Six of the most common methods of
measurement used for control and evaluation
purposes:
– return on investment (ROI)
– sales growth and/or market share
– costs
– new product development
– MNE/host-country relations
– management performance.

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Figure 8.6 The control and evaluation process

M08 rugm 6563_05_ppw_ch08

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