INTERNATIONAL STRATEGY

CHAPTER 1 - THE STRATEGIC DIRECTION OF THE COMPANY: INTRODUCTORY CONCEPTS

SUCCESSFUL STRATEGY

To make a strategy successful we need to effectively implement:

1. Long-term, simple and agreed objectives.

2. Profound understanding of the competitive environment.
3. Objective appraisal of resources.

WHAT IS STRATEGY?

We need to take into consideration:

• The firm: goals and values, resources and capabilities, structure and systems.
• The industry environment: competitors, customers, suppliers.

Strategy is not a detailed plan or program of instructions; it is a unifying theme that gives coherence and
direction to the actions and decisions of an individual or an organization.

CHANDLER (1962)
Strategy is the determination of the basic-long term goals of an enterprise, and the adoption of courses
of action and the allocation of resources necessary to carry out these goals.

HAMBRICK & FREDICSON (2005)

1. Putting strategy in its place
 2. Determine the 5 major elements of the strategy.

THE NINE DIMENSIONS OF STRATEGY

• Strategy to set the goals of the firm.

• Definition of the competitive scope of the firm.
• Helps to get a sustainable competitive advantage.
• A way to set directive tasks.
• It integrates, unifies and gives coherence to decisions.
• It is a definition of the contributions sought.
• It is the way the firm should proceed to obtain its goals.
• It is a way to develop core competences.
• It is a way to obtain resources in order to gain a competitive advantage.

STRATEGIC MANAGEMENT GOAL

Is to determine how the firm will deploy its resources within its environment and so satisfy its long-
term goals, and how to organize itself to implement that strategy.

STRATEGY COMPONENTS

1. Scope of activity: this delimits the area in which the firm will complete.
2. Distinctive capabilities: these represents the combination of abilities, resources and
competences that distinguish the firm from its rivals.
3. Competitive advantage: it is said that a firm has a competitive advantage when it is in a
favourable position relative to its competitors.
4. Synergy: this comes from the multiplied effect of the coordination of resources, competences
and actions.
STRATEGIC GAP

It is the difference between the current/actual strategic position and the desired strategic position.

EVOLUTION OF STRATEGIC MANAGEMENT

STRATEGY LEVELS

CORPORATE STRATEGY: most global vision

• New business to develop

• Current business to abandon
• Resource allocation to each business
• Overall guidelines and standards
• Etc.

BUSINESS STRATEGY

• Quest for competitive advantage in the current industry.

o Cost-leadership
o Differentiation
FUNCTIONAL STRATEGY

Strategies based on one of the functional levels.

• Marketing: deals with pricing, building brand awareness, address distribution channels, …
• Research and Development (R&D): product innovation, process innovation, internal
development, external development, …
• Human Resources Management (HRM)
• Financial: evaluation, forecasting, planning and budgeting, credit strategies, capital investment
strategies.
• Information Management

STRATEGIC BUSINESS UNITS

STRATEGY MAKING
If we are competing in the present, we will make a static strategy:

• Where are we competing? Product market scope, geographical scope, vertical scope.
• How are we competing? What is the basis of our competitive advantage.

If we are preparing for the future, we will use a dynamic strategy.

• What do we want to become? Vision statement

• What do we want to achieve? Mission statement, performance goals.
• How will we get there? Guidelines for development, priorities for capital expenditure and R&D,
growth models: organic growth, Mergers and Acquisitions (M&A), alliances.
STRATEGY MAKING: DESIGN VS. PROCESS

The strategy is constantly adjusted and revised in light of the experience gained over time. There is always
a continuous interaction between formulation and implementation.

The more turbulent and less predictable the business environment is, the less specific the strategy should
be. That is, strategy becomes guidelines rather than specific decisions.

Examples of strategy definition:

• Southwest Airline’s strategy statement: meet customers’ short-haul travel needs at fares
competitive with the cost of automobile travel.
• Lego: does the product have a Lego look? Will the children learn while having fun? Does it
stimulate creativity?

STRATEGY MAKING – HBR

STRATEGY FORMULATION
SWOT ANALYSIS

STRATEGIC SWOT ANALYSIS

HOW TO EVALUATE AND SELECT A STRATEGY

There are three basic criteria to evaluate and select a strategy:

1. Adequation
2. Feasibility
3. Acceptability
MCKINSEY 7’S FACTORS SHAPING THE NEW STRATEGY CHANGE

HOW TO CONTROL A STRATEGY

There are two types of controlling:

1. Financial type: ROI, ROE, ROA, increasing shareholder value, market value, …
2. Balance Scorecard: thought to help managers focus their attention more closely on the
interventions necessary to ensure the strategy is effectively and efficiently executed. It has four
components:
o Finance: how should we appear to our shareholders?
o Customers: how should we appear to our customers to achieve the vision?
o Internal process: what processes should be excellent to satisfy our customers and our
shareholders?
o Formation and growth: how will maintain and provide sustenance our ability to change
and improve to get achieve our vision.
Ex: Regional Airline Balance Scorecard

• Mission: dedication to the highest quality of Customer Service delivered with a sense of warm,
friendliness, individual pride and Company Spirit.
• Vision: continue building on our unique position – the only short haul, low-fare, high-frequency,
point-to-point carrier in America.

MULTIPLE ROLES OF STRATEGY

• Strategy as Decision Support: improves the quality of decision making.

• Strategy as Coordination and Communication: creates consistency and unity.
• Strategy as Target: improves performance by setting high aspirations.

WHY IS STRATEGY USEFUL?

• Strategy analysis improves decision-making processes, but doesn’t give answers.

• Strategy analysis helps us to identify and understand the main issues.
• Strategy analysis helps us to manage complexity.
• Strategy analysis can enhance flexibility and innovation by supporting learning.

WHAT IS A BUSINESS MODEL

“A business model describes the rationale of how an organization creates, delivers, and captures value.”
(Osterwalder & Pigneur – 2010)

A business model has two parts – Joan Magretta (2002)

1. All the activities associated with making something: purchasing raw materials, manufacturing,
…
2. All the activities associated with selling something: finding and reaching customers, transacting
a sale, distributing the product, or delivering the service.

A good business model answer:

• Who is the customer?

• What does the customer value?
• How do we make money in this business?
• What is the underlying economic logic that explains how we can deliver value to customers at
an appropriate cost?
BUSINESS MODEL INNOVATION

BUSINESS MODEL vs. BUSINESS STRATEGY

• A business model is a description of how your business runs, but a competitive strategy explains
how will you do better than your rivals.
• How do you battle competitors? Offering a better business model – but it can also be by offering
the same business model to a different market.
• When a new model changes the economics of an industry and it’s difficult to replicate, it can by
itself create a strong competitive advantage.

DEVELOP YOUR BUSINESS MODEL

Ex: Nespresso

• Value proposition: "the best coffee you

can have, at home."
• Customers: two types of customers:
a) a medium-high purchase profile
b) company / professional user.
• Channel: Deliver this proposal uses
different channels: telephone, physical stores,
postcards or online.
• Customer relationship: The relationship is
managed through the Nespresso club, which
not only builds loyalty and regularly rewards
loyalty to its customers, but is also able to
proactively notify the customer (i.e. clean the coffee maker).
• Revenue: Two sources: a) sale of capsules (bait and hook -bait & hook -hook-bait), b) licenses of
its technology to coffee makers.
• Resources: logistics, capsule production, brand image and advertising.
• Activities: capsule manufacturing), R&D and management of the Nespresso club, etc.
• Alliances: The most relevant Alliance is with coffee makers (Krupps, etc.).
• Expenses: Marketing and advertising cost, production cost and logistics costs.
CHAPTER 2 - THE OBJECTIVES AND THE VALUES OF THE COMPANY: THE GOALS AND VALUES
OF THE FIRM.

A FIRM’S MISSION

The mission answers the questions:

• What is the essence of our business and how do we want to be?

• Why do we exist?

The mission should explain the reason why the firm exists, establishing a set of principles by which the
firm will present itself to society.

In a broad sense, the mission should include:

• The business definition of the firm.

• The ethical precepts and commitment of the firm.
• The vision or strategic purpose of the firm.
• The scope of activity, that is, the business in which the firm is operating, including:
o The products offered.
o The consumer need intended to be satisfied.
• The market scope of the firm, also geographically.
• The core capabilities that could generate a competitive advantage.

Ex: Tesla

Our mission …to accelerate the advent of sustainable transport by bringing compelling mass market
electric cars to market as soon as possible…. In order to get to that end goal, big leaps in technology are
required, which naturally invites a high level of scrutiny. That is fair, as new technology should be held to
a higher standard than what has come before.

Ex: Dell

Dell’s mission is to be the most successful computer company in the world at delivering the best customer
experience in markets we serve. In doing so, Dell will meet consumer expectations of highest quality;
leading technology; competitive pricing; individual and company accountability; best-in-class service and
support; flexible customization capability; superior corporate citizenship; financial stability

A FIRM’S VISION

The vision answers the questions:

• How do we want to be?

• Where do we want to go?
• What do we want to achieve?

It represents the future part of the mission.

It has three basic characteristics:

• Always positive.
• Stable in the long term.
• Stresses the effort and commitment of the firm.
VALUES AND PRINCIPLES

The firm’s mission and vision are often complemented by beliefs about how this purpose should be
achieved.

These company beliefs are likely to include a set of values that comprise commitments to different
stakeholder groups and to ethical precepts.

They are also used for external image management!!

They are critical for:

• Organizational identity.
• Organizational culture.
• Employee commitment.

A FIRM’S OBJECTIVES

They can be classified as:

• Generic objectives: common to all firms, such as survival, growth, …

• Specific objectives: unique to each firm.

A firm’s business goals:

• Means-end chain

• Vertical and horizontal integration of objectives

SPECIFIC OBJECTIVES

BUSINESS GOALS

STRATEGY AS A QUEST FOR VALUE

The purpose of business is:

1. To create value for customers.

2. To extract some customer value in the form of profit, thereby creating value for the firm.

HOW CAN A FIRM CREATE VALUE?

• By production.
• By commerce.

Value added= sales revenue from output – cost of material inputs.

CREATE VALUE IN WHOSE INTEREST?

• The STAKEHOLDER approach: the firm is a coalition of interest groups – it seeks to balance their
different objectives.
o Groups: employees, lenders, society, landlords, government, owners, …
• The SHAREHOLDER APPROACH: the firm exists to maximize the wealth of its owners (to
maximize the present value of profits over the life of the firm)
ETHICS IN BUSINESS

Ethics are a set of moral principles and norms that regulate human activities.

The difference between ethics and law is that the former is not written, but it constitutes a collective
sense of what is wright and what is wrong.

Ethics are highly affected by local culture and sometimes they have a stronger influence than law.

Ethics, as a part of society, are exposed to changes over time.

CORPORATE SOCIAL RESPONSIBILITY

What values and principles should a company adopt?

What are a company’s obligations to the society as a whole?

• Property conception: the firm is a set of assets owned by its shareholders.

• Social entity conception: the firm is a community of individuals that is sustained and supported
within its social, political, economic and natural environment.

CSR is the ethical or moral obligation of a firm towards society as a group in order to recognize society’s
demands or to compensate any damage caused.

It should:

• Be the firm’s conscience.

• Have the ability to understand society’s demands.
• Be an obligation of the firm towards society.
• Focus primarily on the protection of environmental issues.
• Represent the institutional attitude of the firm.

CRS vies the firm as embedded within the ecosystem of its social and natural environments employing
congruence between the interests of the firm and the interests of the supportive ecosystem.

• The moral imperative: reasons for CRS – sustainability, reputation, license-to-operate.

• Critical task: to identify specific intersections between the interest of the firm and the interests
of society.

DO COMPANIES “DO WELL” WHEN THEY “DO GOOD”?

Empirical studies show that irresponsible or illegal corporate actions are costly to companies.

Not all firms that “do good” have to “do well”.

The research question is: when is that the firms “do well” when “doing good”?

Effects on consumers’ perception and behaviour:

• Willingness to pay. • Brand enhancement.

• Consumer loyalty. • Consumer satisfaction.
• Product consideration. • Credibility of the company.
• Consumer trust. • Consumer-company identification
EX: Shell

AMORAL APPROACHES

• Friedman approach: the firm has only one responsibility, use all resources in order to make
profits while always respecting the law. That is, free markets, without fraud.
• Cultural relativism: ethics are just a reflection of local culture and, therefore, firms must adapt
their ethics in each country to which they expand.
• Moralist: a moralist believes that his ethical precepts should be applicable to all countries.
• Innocent amoralist: “wherever you go, do what you see being done”.

ORIGIN OF MORAL ETHICS

• Ethical utilitarianism: ethical behaviour is determined by the effects it has on most of the
affected people.
How can you measure it? What about injustice inflicted on minorities?
• Kantian ethics: this stresses that people should always be the goals, not the means to achieve
other goals. People are not instruments like machines, they have dignity and should be treated
as persons.

DETERMINANTS OF ETHICAL BEHAVIOUR

CHAPTER 3 – STRATEGIC MANAGEMENT: EXTERNAL ANALYSIS

ENVIRONMENT

Is the external setting surrounding a firm, everything beyond the firm’s boundaries.

• The firm does not control it.

• It affects the firm’s decisions and results.
• It contains positive and negative forces.

HOW CAN I UNDERSTAND THE GENERIC ENVIRONMENT?

• PESTEL Framework:
o Political dimension
o Economical
dimension
o Socio-cultural
dimension
o Technological
dimension
o Environmental
dimension
o Legal dimension
• Porter’s Diamond Framework: used to understand the competitiveness (comparative
advantage) of nations.
Factor conditions: specialized factor of production. Ex: skill
labour, capital, infrastructure

Firm strategy, structure and rivalry: the conditions in a

country that determine how companies are established,
organized, and managed, and that determines the
characteristic of domestic competition.

Related industries: the proximity with upstream and

downstream industries facilitates the exchange of
promotions a continuous change of ideas and innovations.

Demand conditions: the more demanding the customers in an economy, the greatest the pressure facing
the firms to constantly improve their competitiveness via innovative products.
SPECIFIC ENVIRONMENT

ABELL MODEL

It’s a three-dimensional business definition model that uses the

variables: functions, customers and technologies, to define
business. It also helps for identifying competitors and substitutes.
Therefore, it gives a clear picture of the specific environment.

FIVE FORCES FRAMEWORK (PORTER)

• Bargaining power of suppliers: assessment of how easy is for suppliers to drive up prices.
o Suppliers can exert power by: raising prices, reducing quality, slowing delivery or
threating with forward integration.
o Companies can solution it by: diversifying supply sources, using generic technologies,
upstream integration or volume purchase.
• Bargaining power of buyers: assessment of how easy is for buyers to drive prices down.
o Clients can exert power by: bargaining down prices (especially if products are standard
and switching costs are low), forcing higher quality, or playing suppliers off against each
other (formally in an auction).
o Companies can solution it by: diversifying the clients’ portfolio, distributing channels, or
downstream integration.
• Threat of substitutes products: where close substitute products exist in the market, it increases
the likelihood of customers switching to alternatives in response to price increases.
o The threat of substitutes is stronger when: substitutes have comparable or better
quality and performance, there are many good substitutes that are readily available,
substitutes are attractively priced, or end-users have low switching costs.
• Threat of new entry: profitable markets attract new entrants, which erodes profitability.
o The threat of new entry is stronger when: the industry growth is rapid and the profit
potential is high, incumbents are unwilling to unable to contest a newcomer’s entry
efforts, the pool of entry candidates is large, or the entry barriers are low.
 • Competitive rivalry inside the industry: many competitors, offering undifferentiated products
and services, will reduce market attractiveness.
o Strong rivalry is caused by: the products or services offered by rivals are standardized
or weakly differentiated, declining demand or slow market growth, competing sellers
regularly launch fresh actions to boost market standing, or one or more industry rivals
become dissatisfied with their market standing.
o It can be solutioned by: innovation and technology development, differentiation,
retention of customers, creation of switching costs, control of scare resources.

INTERPRETING INDUSTRY ANALYSIS

• High entry barriers Attractive industry

• Suppliers and buyers have week positions
• Few threats from substitute products
• Moderate rivalry among competitors
High profit potential

• Low entry barriers Unattractive industry

• Suppliers and buyers have strong positions
• Strong threats from substitute products
• Intense rivalry among competitors
Low profit potential

UNCERTAINTY LEVEL

• Degree of stability: quantity, depth, speed and unpredictability of changes. It can be static or
dynamic.
• Degree of complexity: whether the factors require more or less knowledge and whether they
demand specialized knowledge. It can be simple or complex.
• Degree of diversity: whether the number of factors involved is large and whether they are similar
or diverse. It can be integrated or diverse.
• Degree of hostility: whether the speed and effect of factors involved are large or not. Favourable
or hostile.

HOW CAN I MINIMIZE THE UNCERTAINTY

Try to predict the future:

• Forecast: econometric models.

• Prospective analysis:
o Delphi method
o Scenario method
o Cross impact matrix
ENTREPRENEURIAL FORECAST

Forecast: is the quantified forecast of the future based on past data → predictive.

• Econometric models: based on time series and regression models.

• Valid only for stable environments, short-term analysis, based on quantitative data.

Prospective: is the appreciation of the evolution of a certain situation. It’s a qualitative and global analysis.

• Scenario method: indicates the different possible evolutions that could lead to different
configurations or scenarios.
This is not a future forecast but a quantitative analysis of how the future could be.
1. Describe the time horizon and scope.
2. Identify the main interest groups, those affected and those exerting influence.
3. Description of actual trends and other key factors that affect the variables of interest.
4. Identify the values of uncertainty that affect the variables of interest.
5. Build three possible alternative scenarios (positive, neutral, negative) and add the actual
trends.
6. Evaluate internal consistency and feasibility of the created scenarios.
7. Analyse the dynamics of the scenarios.
8. Generate the most adequate strategies for competing in the selected scenario.
• Delphi method: it’s useful to obtain a qualitative analysis of the future. This methodology
involves asking several experts about their impressions, open debate has to be avoided.
• Cross-impact analysis: is a family of techniques designed to evaluate changes in the probability
of the occurrence of a given set of events consequents on the actual occurrence of one of them.

1. Step 1 – Filling the matrix: the impacts of each variable on the others are assessed through
individual brainstorming and subsequent group discussion. For each variable, consider its
influence on other variables and give your answer as a score between 0 (no impact) and 3
(high impact).
2. Step 2 – Sum of scores: the sums are calculated for the rows (active sum) and the columns
(passive sum). The individual behaviour of the variables is represented by the values of the
active-sum (AS) and the passive-sum (PS). The active sum represents the ability if an
individual variable to influence all other variables in the system, whereas the passive sum is
a value that corresponds to the reaction of the variable due to changes in other variables in
the system.
 3. Step 3 – Results: the result of this analysis is the systematic identification of appropriate
options for the scenario development using the active variables in the system. For the
further development of scenarios, mainly variables with a high active potential (high AS, low
PS) are investigated. Focusing on these variables in the following procedure leads to incisive
scenarios. The critical variables do have a high relevance for designing and implementing
PS, they have a high dynamic potential but should be handled with caution.

INDUSTRIAL STRUCTURE SPECTRUM

INDUSTRIAL CLUSTERS

A cluster is a numerous group of firms and institutions that are related in terms of economic activity and
their location within a certain geographical environment.

BENEFITS
1. Increase in productivity: due to access to
certain specific resources (clients, suppliers,
personnel, information, …)
2. Enhancement in innovation: due to early
discovery of new technological trends or the
identification of new clients’ needs (contrary
to geographically isolated firms).
3. Creation of new ventures: favours the
creation of new firms that will foster the
cluster.

DETERMINANTS OF INDUSTRY PROFITABILITY

1. The value of the product to customers.

2. The intensity of competition.
3. Relative bargaining power at different levels of the value chain.
IDENTIFYING THE MARKE T POSITION OF COMPETITORS

Steps to build a map of strategic groups:

1. Identify the competitive characteristics that delineate strategic approaches.

2. Plot firms on a two variable map based upon their strategic approaches (key approaches offering
value).
3. Assign firms occupying the same map location to a common strategic group.
4. Draw circles around each strategic group, making the circles proportional to the size of the
group’s share of total industry sales and revenues.

CHARACTERISTICS FOR IDENT IFYING STRATEGIC GROUPS

• Product-line breadth
• Same price/quality range
• Emphasis on distribution channels
• Same product attributes
• Identical technological approaches
• Similar services and technical assistance
• Geographical coverage
• Vertical integration

WHAT CAN BE LEARNED FROM STRATEGIC MAPPING GR OUPS?

• The maps show the “best place to be” and why.

• Driving forces and competitive pressures often favour some strategic groups and hurt others.
• Competitive pressures may cause the profit potential of different strategic groups to vary.
• Identification of the mobility barriers.
MARKET SEGMENTATION

This is the process of splitting customers, or potential customers, in a market into different groups, or
segments, within which customers share a similar level of interest in the same or a comparable set of
needs satisfied by a distinct marketing proposition.

Market segmentation, correctly applied, is about understanding the needs of customers and, therefore,
how they decide between one offer and another.

This insight is used to form groups of customers who share the same or very similar value criteria. A
company is then able to determine which groups of customers it is best suited to serve and which product
and service offers will both meet the needs of its selected segments and outperform the competition.

MARKET SEGMENTATION CRITERIA

COMPETITOR ANALYSIS
CONDUCT-STRUCTURE-RESULT PARADIGM

Explains how the variables that define the industry

structure also condition the firm’s behaviours and results
(profits, efficiency).

IDENTIFYING THE INDUSTRY’S DOMINANT ECONOMIC FEATURES

Industry competition is going to be determined by these features which include:

• Market size and growth rate

• Number of rivals
• Scope of competitive rivalry
• Pace of technological change
• Degree of vertical integration
• Need for economies of scale
• Learning and experience curve effects

IDENTIFYING KEY SUCCESS FACTORS

• Key Success Factors (KSFs) are competitive factors most affecting every industry member’s
ability to prosper in the marketplace.
• KSFs include:
o Specific product attributes
o Necessary resources, competences and capabilities
o Specific intangible assets
o Competitive capabilities

QUESTIONS FOR IDENTIFYING KSFs

1. On what basis do buyers choose between brands?

2. What resources are needed to compete successfully?
3. What shortcomings are almost certain to put a company at a competitive disadvantage?

COMMON TYPES OF KDFs

• Expertise in a particular technology

• Scale economies or experience curve benefits
• High-capacity utilization
• Strong network of wholesale distributors
• Brand building skills
• Convenient retail locations