After clarifying the corporate mission and objectives, the first major step in weighing international strategic options is the environmental assessment This assessment includg environmental scanning and continuous monitoring to keep abreast of variables around the world that are pertinent to the firm and that have the potential to shape its future by posing new opportunities (or threats). Firms must adapt to their environment to survive. How to adapt is the focus of strategic planning.
The process of gathering information and forecasting relevant trends, competitive actions, and circumstances that will affect operations in geographic areas of potential interest is called environmental scanning. This activity should be conducted on three levels - multinational, regional, and national - which are discussed in detail later in this chapter. Scanning should focus on the future interests of the firm and should cover the following major variables (as discussed by Phatak and others).
Political instability. This variable represents a volatile and uncontrollable risk to the multinational corporation, as illustrated by the upheaval in the
Middle East in recent years. MNCs must carefully assess such risk because it may result in a loss of profitability or even ownership.21'
Currency instability. 'Ibis variable represents another risk; inflation and fluctuations in the exchange rates of currencies can dramatically affect profitability when operating overseas- In early 1995, for example, both foreign and
local firms got a painful reminder of this risk when Mexico devalued its peso, and in 1998 currency collapse in Indonesia forced President Suharto to resign. Nationalism. This variable, representing the home government's goals for
independence and economic improvement, often influences foreign companies. The home government may impose restrictive policies - import controls, equity requirements, local content requirements, limitations on the repatriation of profits, and so forth. Japan, for example, protects its home markets with these kinds of restrictive policies. Other forms of nationalism may be exerted through the following: (1. pressure from national governments - exemplified by the United States putting pressure on Japan to curtail unfair competition; (2. lax patent and trademark protection laws, such as those in China in recent years, which erode a firm's proprietary technology through insufficient protection; and (3. the suitability of infrastructure, such as roads and telecommunications.
International competition. Conducting a global competitor analysis is perhaps the most important task in environmental assessment and strategy
formulation. The first step in analyzing the competition is to assess the relevant industry structures as they influence the competitive arena in the particular country (or region) being considered. For example, will the infrastructure support new companies in that industry? Is there room for additional competition? What is the relative supply and demand for the proposed product or service? The ultimate profit potential in the industry in
that location will be determined by these kinds of factors.
• Environmental Scanning. Managers must also specifically assess their current competitors - global and local - for the proposed market. They must
• ask, what are our competitors' positions, their goals and strategies, their strengths and weaknesses, relative to our firm's? What are the likely competitor reactions to our strategic moves? Managers should compare their company with potential international competitors; in fact, it is useful to
draw up a competitive position matrix for each potential international market. For example, Exhibit 6-3 analyzes a U.S. specialty seafood firm's competitive profile in Malaysia.
The U.S. firm in Exhibit 6-3 has advantages in financial capability, future growth of resources, and sustainability, but a disadvantage in quickness. It also is at a disadvantage compared to the Korean MNC in important factors such as manufacturing capability and flexibility and adaptability Because the other firms seem to have little comparative advantage, the major competitor is likely to be the Korean firm. At this point, then, the U.S. firm can focus in more detail on assessing the Korean firm's relative strengths and weaknesses.
The firm can also choose varying levels of environmental scanning. To reduce risk and investment, many firms take on the role of the “follower,” meaning that
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