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Chapter 7 International Strategic Planning and Market Screening. Managing for Success in India. John S. Hill. Figure 7-1: International Strategic Planning and Environmental Analysis. International Strategic Planning Process Introduction Evolution. Assessing the Corporate Position
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Chapter 7International Strategic Planning and Market Screening Managing for Success in India John S. Hill
Figure 7-1: International Strategic Planning and Environmental Analysis • International Strategic Planning Process • Introduction • Evolution • Assessing the Corporate Position • Internal Influences • Planning processes • Corporate mission • Corporate competencies • External Influences • Current marketplace position • Industry position • Assessing the Corporate Position • Internal Influences • Planning processes • Corporate mission • Corporate competencies • External Influences • Current marketplace position • Industry position • Environmental Analysis • Political Risks • Economic Risks • Operational Risks • Financial Risks • Legal Risks • Taxation Risks • Security Risks • Planning Outputs • Goal setting • Strategy-crafting activities • Global/regional/local strategies • Resource Deployments
Chapter Outline • The International Planning Process • Assessing the Corporate Position • Formulation of Strategic Plans • Market Screening and Risk Assessments
The International Planning Process • The Changing Environment of International Planning: Historic Perspectives • The Evolution of the International Corporate Planning Process
The International Planning Process • The Changing Environment of International Planning: Historic Perspectives • 1945: Major international push into world markets • 1950s and early 1960s: Little competition—centralized planning OK in under-supplied world economy • 1960s and 1970s: Europe and Japan start competing; new tools of analysis (GE matrix, Boston Consulting) • 1980s: Big emerging markets in Latin America, Eastern Europe and Asia make planning more complex • 1990s: Decentralization of planning activities to get closer to customers
The International Planning Process • The Evolution of the International Corporate Planning Process • Financial Planning: budgets and costs, and revenue and profits, for the year ahead • Long Term (Forecast-based) Planning: forecast for 3 or 5 years ahead for sales, costs and profits • Environmental Planning: formal evaluations of external developments, with economic, socio-demographic and technological trends; competitor analyses are important • Integrative Strategic Planning: strengths-weaknesses-opportunities-threats analyses with focus on competitive analysis; ‘what if’ scenarios and stakeholder considerations
Assessing the Corporate Position • Internal Assessments • Corporate mission • Assessing Corporate Competencies • External Assessments: The Marketplace Situation • External Assessments: Corporate and Industry Development
Assessing the Corporate Position • Internal Assessments • The Corporate Mission • Description of the business: customers, products, markets • Strategic intent: long-term competitive goals • Perceived organizational strengths: what makes the firm successful • Strategic elements: leverage of competitive strengths • Organizational values for corporate cultures: how they contribute to corporate success • Exhibit 7-1 Mission Statements of Major International Corporations (page 239). Orientations are: shareholder; stakeholder; competitive; internal; societal; customer; quality; community
Assessing the Corporate Position • Internal Assessments • Assessing Corporate Competencies: three major types • Superior technological know-how and product innovation: Microsoft, Intel • Reliable processes that produce consistent, efficient quality products and services in world markets. Beckton-Dickinson, Citicorps, Fedex • Close external relationships with suppliers, regulators, professional organizations, distributors and especially customers. Unilever, Proctor & Gamble and Nestle
Assessing the Corporate Position • External Assessments: The Marketplace Situation • Strategic Business Unit SBU Evaluation: Companies routinely divide their businesses or product lines into strategic business units. • Figure 7.2 Group Assessments of SBUs (page 241): profit contributions to group and competitive position • Figure 7.3 Evaluating Corporate Regional Performance on a Market Size Growth Matrix (page 242): regional market size and growth • Worldwide/Regional Evaluations: Assessment of geographic strategies to allocate corporate resources on a worldwide basis (e.g. Asia versus Latin America ) • Regional/Country Assessments: Managing similar product lines across regions and markets: assess best practices and transfers among regions/markets
Above Average SBU1 SBU2 SBU4 SBU3 ROI Group Average SBU5 SBU6 SBU7 Below Average SBU8 Below Average Industry Performance (ROI) Above Average Figure 7-2: Group Assessments of SBUs: Contribution to the Group and Performance in their Industry -
W. Europe North America Latin America Regional Market Size Asia E. Europe Africa/Middle East -3 -2 -1 1 2 3 5 6 7 8 0 4 Contracting Slow Growth Rapid Growth Market Growth Rates (%) Figure 7-3: Evaluating Corporate Regional Performance on a Market Size-Growth Matrix -
Assessing the Corporate Position • Assessing Subsidiary Contribution to Group Performance • The Chinese, French and US affiliates are ‘stars’: contribute to group and are competitive in national markets • The German, Argentinean and Brazilian affiliates: competitive in national markets but drags on group performance • Taiwan ROC, Belgium-Luxembourg and Sweden are above average contributors to SBU, but less competitive nationally • Japan and Indonesia are sub-par performers both within the group and in their national markets • Table 7.1 Product Division Analysis Across Countries and Regions (page 244) • Figure 7.4 Assessing SBU Geographic Performance (page 245)
Above Average France Taiwan ROC Sweden USA SBU ROI Belg/Lux China PRC Argentina Germany Japan Brazil Below Average Indonesia Low National Industry ROI Performance Average High Figure 7-4: Assessing SBU Geographic Performance: SBU ROI and National Industry ROI Comparisons -
Assessing the Corporate Position • Individual Subsidiary Analysis • Market Share/Momentum Analyses plot product performance against market performance to ascertain which products are under-performing market trends (and losing market share momentum) and those that are outperforming market trends (i.e. gaining market share momentum) • Competitive benchmarking profiles the characteristics and strategies of rival companies and their performances along key competitive dimensions • Figure 7.5 Share/Momentum Chart for a Consumer Goods Subsidiary (page 246) • Figure 7.6 Plotting Subsidiary Performance Against Key National Competitors (page 247)
Assessing the Corporate Position • External Assessments: Corporate and Industry Resource Deployments • Industry behaviors are important reference points for individual firms • Company-industry comparisons of worldwide resource deployments give key insights for strategic decision makers: where the company is producing/making sales versus where the industry is producing/making sales • Figure 7.7 Plotting Geographic Strengths and Weaknesses in Sales and Production Deployments (page 248)
Formulation of Strategic Plans • Subsidiary-level Planning • Integrating National Plans into Regional and Global Strategies • Benefits of a Well-Executed Planning Process
Formulation of Strategic Plans • Subsidiary-level Planning • Historic analyses of product line sales, costs and margins: summary of strategy, competitor actions, supply chain activities • Table 7.2 Subsidiary-Level Planning with 3-Year Projections (page 250) • Subsidiary performances summarized into regional plans: historic, forecasted sales, critical assumptions • Table 7.3 Integrating Subsidiary Forecasts into Regional Plans (page 251)
Formulation of Strategic Plans • Integrating National Plans into Regional and Global Strategies • Setting Objectives, financial objectives customary but 4 component ‘balancedscoreboard’approach links financial goals to competitive and internal activities • Financial Perspectives aimed at shareholders and the financial community: profitability, ROI, share prices • Customer perspectives, lead times, quality levels, and performance/service levels • Internal Perspectives: cycle times, quality levels, costs employee capabilities • Innovation and Learning Perspectives: tracks organizational learning: new product development times/successes • Corporate Goals and Feedback: Non-performance—most firms reformulate objectives and strategies
Formulation of Strategic Plans • Benefits of a Well-Executed Planning Process • External Benefits: Good Resource Deployment Decisions:mapping of current/proposed resource deployments Japan Large China Market Size Australia Indonesia India Thailand Medium Philippines Burma Malaysia Pakistan New Zealand Small Vietnam Bangladesh Laos -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Contracting Slow Moderate High Projected Growth Rates (%)
Formulation of Strategic Plans • Benefits of a Well-Executed Planning Process • Internal Benefits • Defining the strategic direction of the corporation • Providing insights into competitor strategies and how to compete against rivals • Systematic incorporation of industry-change drivers into strategies • Concise guidance for geographic strategies and international resource commitments • Providing direction at the subsidiary level by identifying performance criteria
Market Screening and Risk Assessment: Many risks to be assessed • Political risks: political/power groups; ethnic, linguistic, religious factions; xenophobia, nepotism, uneven wealth distributions; leftist movements • Economic risks:inflation, government mismanagement of economy • Financial & foreign currency risks: currency convertibility; money transfers, balance of trade/payments, reserves, debt • Operations risks: day-to-day management: bureaucracies, labor costs, infrastructure, financial markets • Legal risks: non-arbitrary versus corrupt legal systems
Market Screening and Risk Assessment • Taxation risks: financial institutions—clear, equitable tax frameworks versus arbitrary, corrupt systems • Security risks: crime, terrorism levels, kidnapping • Business risk evaluations: overall evaluations of risks; national comparisons; special factors for further evaluation • Special case: Emerging markets because of their importance and rapid rate of change • Long-term planning: Scenario analyses for particular industries (e.g. oil) and important markets (e.g. China)
Environment Analysis: Market Screening and Risk Assessment • Risks Summary • Political risks: most important as affects national economic performance, exchange rates, legal, taxation and security systems • Economic risks: the stability, openness and market forces-orientations of national economies • Financial and Foreign Currency risks: a country’s ability to meet its foreign financial obligations • Operations risk: affects day-to-day managements of foreign enterprises
Environment Analysis: Market Screening and Risk Assessment • Risks Summary • Legal risks: contracts and legal recourse • Taxation risks: ability to move financial assets, money, products and components throughout world markets • Security risks: firms that depend on expatriates in their managements of local subsidiaries
Environment Analysis: Market Screening and Risk Assessment • Business Risk Evaluation Methodologies • Business Risk Services (BRS): 50 markets—operations risk + political risk + currency risk (R Factors) = Profit Opportunity Recommendation • World Markets Online (WMO): 150 markets—political + economic + legal + taxation + operations + security risks = total risk • Advantages: comprehensiveness, comparability, potential problem areas • Problems: too comprehensive for exporters?; glossing over cultural elements; not industry-focused
Environment Analysis: Market Screening and Risk Assessment • Special Case: Evaluating Emerging Markets, ‘big emerging markets’ (BEMs): Special emphases on market size, growth, middle classes, infrastructure, economic freedom, market receptivity • Long Term Planning: Scenario Analyses, “stories that describe different versions of the future” • Industry Scenarios, help managers understand long-term market changes—Shell Oil’s 2025 scenarios • Market Scenarios, help firms anticipate developments in individual countries or regions. A mid-1990’s scenario analysis of China: five alternative paths to development
Key Points • International strategic planning process • Assessing the corporate position • Formulation of strategic plans • Goal setting • Resource deployment decision • Preliminary assessments of risks
Key Points(International Strategic Planning Process) • International strategic planning is the process through which worldwide companies evaluate past results, assess their corporate strengths and weaknesses, and map out future resource allocations and strategies based on marketplace opportunities and threats. • Planning has become increasingly important since 1945 as worldwide competition has increased, and more variables have been factored into the process.
Key Points (Assessing the Corporate Position) • Internal assessments include evaluations of corporate missions (what the company is, where it wants to be), and its competencies (what it is good at). • External assessments look at how the international company is performing in its various businesses (SBUs); and the firm’s geographic performance worldwide, regionally, and in specific country markets. • Contributions to group performance are monitored (above, below average performers) along with assessments of competitive performance against market rivals. Subsidiaries evaluate current product line performances (market share/momentum analyses); and benchmark themselves against market competitors. • Many firms benchmark their resource deployments against those of their industry to provide external reference points for strategic decision-making.
Key Points (Formulation of Strategic Plans) • Formulation of strategic plans usually starts at the subsidiary level and includes historic analyses of sales, costs, market sizes, shares as well as strategy summaries and supply chain developments for all products, with projections for 3-5 year periods. • These are then consolidated into regional and global strategies and plans.
Key Points (Goal setting) • Goal setting includes • Financial perspectives (ROIs, shareholder value) • Customer perspectives (customer fulfillment, quality etc.) • Internal perspectives (technological capabilities, employee skills) • Innovation/learning perspectives (improvements over time)
Key Points (Resource Deployment Decisions) • Resource deployment decisions involve investment/divestment decisions in specific businesses and markets
Key Points (Preliminary Risk Assessments) • Prior to investment decisions, companies screen markets to gain preliminary assessments of political, economic, operational, financial, legal, taxation, and security risks. • Firms use commercial vendors of business risk information for this purpose. • Because of the special status of emerging markets, additional data sources may be used.