Chapter 6

STRATEGIC PLANNING, ORGANIZATION AND CONTROL

different approaches to strategy
formulation in international business
1. Porter’s Approach (1985, 1986, 1990)
Michael Porter proposed that firms must select and apply a generic strategy to gain competitive
advantage both domestically and internationally.
(a) Selection of an appropriate generic strategy
Porter identified three generic strategies:
•Cost Leadership – Compete by being the lowest-cost producer in the industry, enabling lower
prices or higher margins.
•Product Differentiation – Offer unique products or services that stand out from competitors,
allowing the firm to charge premium prices.
•Focus Strategy – Concentrate on a specific market segment or niche, either through cost
advantage or differentiation within that segment.
(b) Application in International Business
When a company operates globally, it must apply these generic strategies
across countries through:
•Configuration – Deciding where to locate different value chain activities (e.g.,
production, R&D, marketing) across nations for maximum efficiency.
•Coordination – Ensuring that activities in different countries work together
effectively to support the overall global strategy.
2. Prahalad and Hamel (1990); Kay (1993)
These scholars emphasized core competence as the foundation of strategy.
Development of Core Competence
This approach focuses on building and leveraging the unique strengths of the firm:
•Unhindered availability of least-cost resources – Efficient access to materials, skills, or
technologies.
•Better network of relationships – Strong connections inside the firm and with external partners
(suppliers, distributors, etc.).
•Improved features of the product – Continuous innovation to enhance quality or performance.
•Improved communication links with consumers – Strong customer relationships and feedback
loops.
•Improvement in market position – Strengthening the firm’s competitiveness and reputation in
key markets.
Core competence enables a firm to adapt, innovate, and compete globally.
3. Yip’s Approach (1992)
George Yip introduced the concept of a Total Global Strategy, focusing on integrating and
managing operations worldwide.
Adoption of Total Global Strategy
It involves:
•Development of core business strategy – Establishing a strong, unified global strategy that
defines how the company will compete.
•Internationalization of core business strategy – Extending the domestic strategy to
international markets, ensuring global consistency.
•Coordinating activities across countries – Synchronizing operations, marketing, production,
and R&D to achieve synergy and global efficiency.
Approach Main Focus Key Elements

Cost leadership, differentiation,

Competitive advantage through
Porter focus; configuration &
generic strategies
coordination

Building and leveraging core Innovation, relationships,

Prahalad & Hamel / Kay
competencies resource use, customer links

Developing a unified global Core strategy,

Yip
strategy internationalization, coordination
“spectrum of international business (IB)
strategy.”
1. Sources of Funds
This refers to where and how the firm obtains financial resources to support its
international activities.
•Companies can raise funds domestically or internationally (through global
financial markets, foreign investors, or multinational banks).
•The choice of funding source affects cost of capital, currency exposure, and
financial flexibility.
•Example: A firm might issue bonds in a country with lower interest rates or
attract foreign direct investment (FDI) to fund expansion.
2. Location of Manufacturing
This involves deciding where to produce goods or deliver services on a global
scale.
•Firms assess factors such as labor costs, raw materials, infrastructure, political
stability, and trade barriers to select manufacturing sites.
•The goal is to optimize cost efficiency and market responsiveness.
•Example: A company may locate its production plant in Vietnam due to lower
production costs but keep design and R&D in Europe.
3. Market and Product Diversification
This deals with expanding into new markets and/or offering a wider range of
products to reduce risk and enhance growth.
•Market diversification: Entering different geographic regions (e.g., Asia,
Europe, Africa) to reduce dependence on one market.
•Product diversification: Offering new or modified products to meet varied
consumer preferences across countries.
•The combination strengthens competitiveness and ensures stability when one
market or product line underperforms.
Component Meaning Strategic Purpose

Where and how the firm raises Ensure cost-effective financing

Sources of Funds
financial resources and capital flexibility

Where production or operations Minimize costs and maximize

Location of Manufacturing
are based efficiency

Expansion into new Spread risks and capture global

Market & Product Diversification
markets/products opportunities
Various level of strategy formulation
Strategy formulation occurs at three main levels:
[Link]-level strategy
[Link]-level strategy
[Link] or operational-level strategy
—and in the case of multinational firms, an additional international
(global) level strategy is also considered.
 1. Corporate-Level Strategy
Scope: Entire organization (the topmost level)
Decision-makers: Board of directors, CEO, and senior executives
Meaning:
Corporate strategy defines the overall direction of the organization. It answers the question:
➡️ “What businesses should we be in?”
Key Elements:
•Growth strategy: Expanding through mergers, acquisitions, joint ventures, or entering new
markets.
•Stability strategy: Maintaining current operations and focusing on efficiency.
•Retrenchment or divestment strategy: Reducing or eliminating unprofitable units.
•Diversification: Entering into new but related or unrelated business areas.
Example:
Tata Group deciding to operate in automobiles, steel, hospitality, and telecommunications is a
corporate-level decision.
2. Business-Level Strategy
Scope: Each individual business unit or division within a corporation
Decision-makers: Business unit heads or divisional managers
Meaning:
Business-level strategy determines how to compete successfully in a particular industry or market.
It answers the question:
➡️ “How should we compete in this business?”
Key Elements:
Michael Porter identified three primary business strategies:
•Cost Leadership: Competing by offering lower prices through cost efficiency.
•Differentiation: Offering unique products or services that justify a higher price.
•Focus (Niche): Targeting a specific segment of the market either through cost advantage or differentiation.
Example:
Toyota’s focus on quality and reliability in the automobile market reflects a differentiation strategy at the
business level.
3. Functional-Level (Operational) Strategy
Scope: Specific functions or departments (marketing, HR, production, finance, etc.)
Decision-makers: Functional managers and supervisors
Meaning:
Functional strategies translate the business-level strategy into specific actions and
day-to-day plans.
It answers the question:
➡️ “How do we support the business strategy in each functional area?”
Examples:
•Marketing: Launching global advertising campaigns or digital marketing drives
•Production: Implementing lean manufacturing or total quality management
•HR: Developing global talent and training programs
•Finance: Managing international funding and currency risks
4. International or Global-Level Strategy
Scope: Entire multinational or transnational organization
Decision-makers: Top international managers and corporate strategists
Meaning:
When a firm operates across borders, it must formulate strategies to manage its global presence.
It answers the question:
➡️ “How do we compete and coordinate activities across different countries?”
Key International Strategies:
•Global Strategy: Standardizing products and operations worldwide to achieve efficiency (e.g., Apple).
•Multidomestic Strategy: Adapting products and practices to each local market (e.g., Nestlé).
•Transnational Strategy: Balancing global efficiency with local responsiveness (e.g., Unilever).
•International Strategy: Exporting or licensing products abroad with limited local adaptation.
Level Scope Key Question Focus Area Example

Growth,
What businesses Alphabet Inc. owning
Corporate-Level Whole organization diversification,
should we be in? Google, YouTube, etc.
mergers

Individual business How should we Competitive Samsung’s

Business-Level
units compete? advantage smartphone strategy

Departments/function How to support Implementation and Marketing, HR,

Functional-Level
s business strategy? efficiency Finance plans

Coca-Cola’s global
How to compete Global integration &
International-Level Global operations marketing with local
globally? local adaptation
flavors