After the environmental assessment, the second major step in weighing international strategic options is the internal analysis. This analysis determines which areas of the firm's operations represent strengths or weaknesses (currently or potentially) compared to competitors, so that the firm may use that information to its strategic advantage.
The internal analysis focuses on the company's resources and operations, and global synergies. The strengths and weaknesses of the firm's financial and managerial expertise and functional capabilities are evaluated to determine what key success factors (KSFs) the company has and how well they can help the firm exploit foreign opportunities. Those factors increasingly involve superior technological capability (as with Microsoft and Intel); they also involve other strategic advantages such as effective distribution channels (as with Wal-Mart), superior promotion capabilities (Disney), low-cost production and sourcing position, superior patent and new product pipeline (Merck), and so on.
Using such operational strengths to advantage is exemplified by Japanese car manufacturers: their production quality and efficiency has catapulted them into world markets. As to their global strategy, they have recognized that their sales and marketing functions have proven a competitive weakness in the European car wars, and the Japanese are working on these shortcomings. Japanese automakers - Toyota, Honda, Mazda, and so on - are following Ford and GM in seeking to become more sophisticated marketers throughout Europe.
All companies have strengths and weaknesses. Management's challenge is to identify both and take appropriate action. Many diagnostic tools are available for conducting an internal resource audit. Financial ratios, for example, may reveal an inefficient use of assets that is restricting profitability; a sales-force analysis may reveal that the sales force is an area of distinct competence for the firm. If a company is conducting this audit to determine whether to start international ventures or to improve its ongoing operations abroad, certain operational issues must be taken into account. These issues include (I) the difficulty of obtaining marketing information in many countries, (2. the often poorly developed financial markets, and (3. the complexities of exchange rates and government controls.
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