Notes No: 2 Global Strategic Management Module No: 2

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2.1. Global Environmental Analysis: Meaning

Global Environmental Analysis refers to the systematic examination of external and
internal factors that influence an organizationÕs ability to operate and compete in
international markets. This process is crucial in strategic management, especially for
multinational companies, because it helps identify risks, opportunities, and trends in
the global landscape. The environment includes economic, political, legal, technological,
sociocultural, and ecological factors that vary significantly across countries and
regions. An accurate environmental analysis enables better strategic alignment,
forecasting, and adaptability in a competitive global context.

2.2. Components of Business Environment

The business environment is typically divided into two broad categories:

 Micro Environment: This includes internal and industry-specific forces such as

customers, suppliers, competitors, intermediaries, and stakeholders. These
factors directly influence an organizationÕs operations and competitive strategy.

 Macro Environment: These are external forces that affect all organizations
across industries and are usually beyond the firmÕs direct control. They include
political, economic, social, technological, environmental, and legal (PESTEL)
elements. Understanding both layers helps companies to strategize better in
global contexts where unpredictability is high.

2.3. Components of Environment in Global Environmental Analysis

Components of Environment in Global Environmental Analysis can also be explained as
given below:

1. Internal Environment: The internal environment as part of Micro Environment

includes all factors within the organization that influence its strategic decisions. These
are usually controllable and can be adjusted through management actions. Key elements
include:

 Organizational Structure: The hierarchy, communication flow, and decision-

making processes.

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  Human Resources: Employee capabilities, skills, motivation, leadership style, and
workforce diversity.

 Corporate Culture: Shared beliefs, values, norms, and organizational identity.

 Resources and Capabilities: Financial assets, technological infrastructure,

production facilities, patents, and managerial competencies.

In global strategic management, internal analysis helps identify core competencies and
prepares the organization to leverage internal strengths while entering or operating in
international markets.

2. Micro Environment (Task Environment): Task Environment as part of the micro

environment refers to the external stakeholders and forces that directly impact an
organization's day-to-day operations. These factors are closely linked to the company
and its ability to serve customers effectively. Major components include:

 Customers: Their preferences, purchasing power, cultural expectations, and

demand trends across countries.

 Suppliers: Availability, reliability, and cost of raw materials or services in

different geographic markets.

 Competitors: Local and international competitors, their market share, strategies,

and capabilities.

 Distributors and Intermediaries: Channels of distribution, retail networks, and

logistics providers in global regions.

 Regulators and Partners: Local governments, trade unions, joint venture

partners, or franchisees.

Understanding the micro environment helps a firm adapt its global strategy to local
market conditions and build sustainable relationships with key stakeholders.

3. Macro Environment: The macro environment consists of broad external factors

that influence all organizations in a market or industry. These are beyond the companyÕs
control, and businesses must adapt their strategies to remain competitive. The
commonly used framework for analyzing macro environment is PESTEL, which includes:

a. Political Environment: Political factors involve government policies, stability,

regulations, and international relations. These include trade tariffs, taxation policies,
labor laws, foreign investment regulations, and the risk of political instability. For global
businesses, political risks can differ significantly across countries.

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Example: MNCs in Venezuela or Myanmar face political volatility, while stable countries
like Canada or Germany offer better predictability.

b. Economic Environment: Economic factors influence the buying power and market
potential of countries. These include inflation rates, exchange rates, interest rates, GDP
growth, income levels, employment trends, and taxation policies. Economic cycles
(recession or boom) significantly affect consumer demand and investment decisions.

Example: Companies may focus more on India and Southeast Asia due to growing middle-
class populations and rising income levels.

c. Sociocultural Environment: This includes cultural values, beliefs, demographics,

education, lifestyle, and social attitudes. It determines consumer behavior, media usage,
labor practices, and product acceptability. Global firms must adapt their messaging,
branding, and even product design to align with local culture.

Example: McDonald's does not serve beef in India and offers vegetarian options aligned
with local customs.

d. Technological Environment: Technological factors refer to the rate of innovation,

automation, digital transformation, and R&D infrastructure in a country or industry.
Rapid technological changes can disrupt industries and create new opportunities or
threats for global firms.

Example: Companies like Amazon and Alibaba have leveraged AI, data analytics, and
mobile platforms to revolutionize e-commerce globally.

e. Environmental/Ecological Environment: Environmental concerns involve climate

change, sustainability, carbon footprint, waste management, and energy use. As global
awareness grows, businesses must comply with environmental regulations and adopt
green strategies.

Example: Companies like Unilever and IKEA have sustainability goals such as reducing
carbon emissions and using renewable energy in global operations.

f. Legal Environment: Legal factors include laws, regulations, and legal systems that
affect business operations such as intellectual property rights, labor laws, competition
laws, consumer protection, and contract enforcement. Compliance with different legal
systems is crucial for MNCs to avoid lawsuits or bans.

Example: Google faces antitrust lawsuits in multiple countries due to different

interpretations of digital competition laws.

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2.4. Environmental Scanning
Environmental scanning is the process of collecting, analyzing, and interpreting
information about the external environment to identify emerging trends, challenges, and
opportunities. It is both a proactive and continuous process used by businesses to
anticipate change and adapt strategically. Companies typically use tools like SWOT,
PESTEL, competitor analysis, and trend monitoring to scan the environment. The goal is
to improve strategic foresight and responsiveness by being aware of what is happening
in the global environment and how it could affect the business. Environmental scanning
mainly includes PESTEL and ETOP.

2.5. PESTEL Analysis

PESTEL is a framework used to analyze the macro-environmental factors that affect
an organizationÕs strategic decisions. It includes:

 P – Political: Examines the impact of government policies, stability, regulations,

trade restrictions, and tariffs.

 E – Economic: Assesses economic indicators like inflation, interest rates,

exchange rates, GDP, unemployment, etc.

 S – Social: Looks into demographic trends, lifestyle changes, consumer behavior,

education levels, and cultural norms.

 T – Technological: Evaluates technological innovation, R&D activity, automation,

and digital disruption.

 E – Environmental: Focuses on ecological and environmental aspects like climate

change, sustainability, and resource availability.

 L – Legal: Reviews legal systems, consumer laws, labor laws, international trade
regulations, and intellectual property rights.

Purpose: PESTEL helps firms identify external forces that can either threaten or
benefit their operations in international markets. It's essential for global expansion,
risk management, and long-term planning.

2.6. Environmental Threat and Opportunity Profile (ETOP)

The Environmental Threat and Opportunity Profile (ETOP) is a strategic tool that
provides a structured overview of the key environmental factors that present threats
or opportunities to a business.

ETOP is a strategic analysis tool used in global business management to assess external
environmental factors that impact an organization. It helps businesses identify key
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opportunities to exploit and potential threats to mitigate when expanding
internationally. ETOP provides a structured way to scan, evaluate, and prioritize
external factors, enabling firms to align their strategies with the global business
environment.

2.6.1 Steps in Preparing an ETOP

1. Identify Key Environmental Factors: The first step involves categorizing external
factors into:

- Macro-environmental (PESTEL: Political, Economic, Socio-cultural, Technological,

Environmental, Legal)
- Industry-specific (PorterÕs Five Forces: Competitors, Suppliers, Buyers, Substitutes,
New Entrants)
2. Assign Impact Weightage: Each factor is given a weightage based on its significance
to the business (e.g., 0 = irrelevant, 5 = extremely critical).

3. Rate the Nature of Impact

- Opportunity (+) – Positive influence (e.g., growing demand, favorable regulations).

- Threat (-) – Negative influence (e.g., economic recession, political instability).

4. Prepare the ETOP Matrix: A structured table summarizes the analysis, like
(example)

Environmental Factor Impact Weight Nature of Impact Strategic Implications

(1-5) (+/-)
Political: Trade liberalization 4 + Easier market entry
Economic: Currency 3 - Higher import costs
fluctuations
Technological: AI 5 + Competitive advantage
advancements
Legal: Stricter data laws 4 - Compliance costs rise

5. Derive Strategic Actions

Based on the ETOP, firms develop strategies to:

- Leverage opportunities (e.g., entering high-growth markets).

- Mitigate threats (e.g., diversifying supply chains to reduce risks).

The steps of ETOP can also be simplified as below:

 Identify relevant environmental factors under different categories (e.g.,

political, technological, demographic).

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  Assess the impact (high, medium, low) and strategic relevance of each factor.

 Classify each factor as a threat or an opportunity.

 Present the profile in a tabular format that helps managers to visualize where to
focus resources and strategy.

2.6.2. Advantages of ETOP

1. Systematic Analysis – Provides a clear picture of external influences.

2. Strategic Prioritization – Helps focus on high-impact factors.
3. Proactive Decision-Making – Enables firms to prepare for risks and opportunities.
4. Global Expansion Support – Essential for assessing foreign market viability.

2.6.3. Limitations of ETOP

1. Subjective Weightage – Ratings depend on managerial judgment.

2. Dynamic Environment – Rapid changes may make ETOP outdated quickly.
3. Limited Internal Focus – Does not assess internal strengths/weaknesses (SWOT
is complementary).

2.6.4. Purpose of ETOP

The primary purpose of ETOP is to help managers:

 Recognize the external factors that can positively (opportunity) or negatively

(threaten) affect the organization.

 Prioritize strategic actions based on the degree of impact of each environmental

factor.

 Align the firmÕs internal strengths with external opportunities, and prepare for
or mitigate threats.

 Improve decision-making under uncertainty, especially in dynamic global markets.

By creating an ETOP, a firm is better equipped to maintain its competitive advantage

and develop adaptive strategies.

2.6.5. Conclusion

ETOP is a powerful tool in global strategic management that helps businesses navigate
complex international environments. By systematically analyzing threats and
opportunities, companies can make informed decisions, optimize resource allocation, and
gain a competitive edge in global markets.

For a comprehensive strategy, ETOP is often used alongside SWOT analysis (internal
strengths/weaknesses) and PorterÕs Five Forces (industry competition).

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Example: A company entering the African market may list poor infrastructure as a
threat and a growing youth population as an opportunity.

Purpose: ETOP enables better strategic judgment and decision-making by helping

firms understand the risk-reward balance in their external environment.

2.7. Organizational Appraisal

2.7.1. Meaning: Organizational appraisal is the systematic evaluation of a firm's
internal environment, including its resources, capabilities, and core competencies. While
environmental analysis (like PESTEL or ETOP) focuses on external forces, organizational
appraisal is inward-looking and helps a firm understand what it is capable of doing in
response to global opportunities and threats. This process helps identify the companyÕs
strengths and weaknesses, enabling strategic fit between internal capabilities and the
external environment.

2.7.2. Importance in Global Strategic Management: In global strategic management,

organizational appraisal is critical because it determines how well-prepared a company
is to operate in international markets. For example, a firmÕs success in a new country
depends not just on external conditions but on its own ability to adapt to new cultures,
innovate products, build global supply chains, and manage diverse teams. A clear appraisal
helps firms:

 Align strategies with core strengths.

 Avoid overstretching into markets where they lack competence.

 Focus resources on areas that offer sustainable global advantage.

2.7.3. Key Components of Organizational Appraisal: A comprehensive organizational

appraisal evaluates several internal dimensions:

a. Financial Capabilities: Examines the firmÕs financial health, liquidity, investment

capacity, and cost control. A strong financial base enables global expansion, risk-taking,
and resilience.

b. Human Resources: Looks at the skills, experience, leadership, and cross-cultural

capabilities of employees. Global business success depends heavily on culturally
competent and skilled personnel.

c. Marketing Capabilities: Includes brand strength, market reach, digital capabilities,

and global customer understanding. It helps determine if the firm can adapt marketing
strategies to local tastes.

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d. Operations and Supply Chain: Reviews efficiency in production, distribution,
logistics, and quality control—critical when managing global supply chains and sourcing
networks.

e. Technological Capabilities: Evaluates the firmÕs use of technology, R&D strength,

innovation, and digital transformation. These are essential for competing in tech-driven
global markets.

f. Organizational Culture and Leadership: Analyzes flexibility, decision-making,

strategic orientation, and leadership vision. A global mindset is essential for managing
across diverse regions.

2.7.4. Tools Used in Organizational Appraisal: Several tools and frameworks assist
in conducting a structured appraisal:

a. SWOT Analysis: Identifies internal Strengths and Weaknesses, and aligns them
with external Opportunities and Threats.

b. Value Chain Analysis (Porter): Breaks down activities to assess where value is
created and how internal processes can be optimized for global competitiveness.

c. Resource-Based View (RBV): Focuses on identifying and evaluating strategic

resources that are valuable, rare, inimitable, and non-substitutable (VRIN).

d. Benchmarking: Compares internal practices and performance with industry leaders

to identify gaps and best practices for improvement.

e. Core Competency Analysis (Prahalad & Hamel): Identifies unique combinations of

resources and skills that provide a competitive edge in the global market.

2.7.5. Strategic Use of Organizational Appraisal: Organizational appraisal directly

influences:

 Strategy Formulation: Determines whether to pursue global standardization,

multi-domestic strategies, or transnational approaches.

 Market Entry Decisions: Helps assess readiness for joint ventures, acquisitions,
or greenfield investments.

 Resource Allocation: Directs investment toward globally scalable competencies.

 Risk Management: Identifies internal weaknesses that need to be addressed

before entering volatile or complex markets.

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2.7.6. Challenges in Global Context: Conducting organizational appraisal in a global
setting can be complex due to:

 Cultural diversity and internal resistance to change.

 Variability in performance standards across countries.

 Misalignment between corporate HQ and international subsidiaries.

 Need for global systems and data for accurate evaluation.

Therefore, global firms must ensure that the appraisal process is standardized yet
adaptable across regions and integrates local inputs for accuracy.

2.8. SWOT Analysis

2.8.1. Meaning: SWOT Analysis is a strategic planning tool used to identify and
evaluate the Strengths, Weaknesses, Opportunities, and Threats related to an
organization. It provides a structured way to diagnose the internal and external factors
that affect a firm's ability to achieve its goals. The aim is to capitalize on strengths,
improve or manage weaknesses, exploit opportunities, and counteract threats.

It is widely used in business strategy formulation, especially when assessing the

feasibility of international expansion, product launches, or competitive positioning.

2.8.2. Components of SWOT Analysis

A. Strengths (Internal Positive Factors): Strengths are the internal capabilities and
assets that give an organization a competitive advantage. These could include:

 Strong brand reputation

 Skilled workforce or leadership

 Financial stability

 Technological superiority

 Strong supply chain or distribution network

 Innovation and R&D capability

A globally recognized brand (e.g., Apple) or an efficient international supply chain (e.g.,
Amazon) is a major strength for firms competing across multiple markets.

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B. Weaknesses (Internal Negative Factors): Weaknesses are internal limitations or
deficiencies that may hinder the firm's ability to meet objectives. These may include:

 Lack of capital or poor liquidity

 Outdated technology

 Inefficient processes

 Weak brand image in new markets

 High employee turnover

 Cultural misfit in global teams

A company may struggle in global markets due to poor understanding of local cultures or
ineffective global coordination.

C. Opportunities (External Positive Factors): Opportunities refer to favorable

external conditions that can help the organization grow or become more competitive.
These could include:

 Emerging markets with high demand

 Technological advancements

 Changing consumer preferences

 Regulatory liberalization

 Strategic alliances or global partnerships

A rising middle class in Asia or increased demand for eco-friendly products worldwide
can present major opportunities for MNCs.

D. Threats (External Negative Factors): Threats are external challenges that may
damage the organizationÕs position or profitability. Common threats include:

 Intense competition

 Political instability

 Trade restrictions or tariffs

 Technological disruption

 Cultural resistance

 Currency fluctuations

Unstable political climates (e.g., war zones), trade wars, or sanctions (e.g., US-China
tariffs) are major threats in global strategic decisions.
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2.8.3. Steps of Conducting a SWOT Analysis
Step 1: Internal Analysis: Examine the company's resources, structure, processes, and
performance to identify strengths and weaknesses.

Step 2: External Analysis: Use tools like PESTEL, ETOP, or industry analysis to identify
opportunities and threats in the global or local environment.

Step 3: SWOT Matrix Construction: Organize the findings into a 2x2 matrix:

Positive Negative

Internal Strengths Weaknesses

External Opportunities Threats

Step 4: Strategy Formulation: Based on the SWOT, develop strategic options such as:

 SO (Strength-Opportunity) Strategy: Use strengths to exploit opportunities.

 WO (Weakness-Opportunity) Strategy: Overcome weaknesses to exploit

opportunities.

 ST (Strength-Threat) Strategy: Use strengths to defend against threats.

 WT (Weakness-Threat) Strategy: Minimize weaknesses and avoid threats.

2.8.4. Advantages of SWOT Analysis

 Simple and easy to conduct.

 Helps summarize complex internal and external environments.
 Encourages strategic thinking.
 Useful for decision-making at all levels.
 Aligns internal capabilities with external realities.

2.8.5. Limitations of SWOT Analysis

 Can be too simplistic if not supported by data.

 Risks of subjectivity or bias in identification.
 DoesnÕt provide solutions, only diagnostics.
 Needs to be integrated with other tools (e.g., PESTEL, Value Chain) for deeper
insights.

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2.9. Industry and Competitive Analysis

2.9.1. Meaning: Industry and Competitive Analysis is a strategic process through which
a business evaluates the overall attractiveness of the industry in which it operates and
the competitive forces that influence profitability. The goal is to understand the
industry structure, identify key players, and determine how firms compete for market
share, enabling informed decisions on strategy formulation, positioning, and investment.
This analysis helps answer questions like:
 Is the industry growing or declining?
 What are the profit margins?
 Who are the competitors, and how intense is the rivalry?
 What are the barriers to entry?
In global strategic management, this analysis is vital because industry dynamics vary
significantly across countries and regions.

2.9.2. Importance of Industry and Competitive Analysis: Conducting this analysis

helps firms:
 Understand industry profitability and risk factors.
 Assess the level of competition and strategic behavior of rivals.
 Identify key success factors for surviving and thriving in the industry.
 Design effective market entry or expansion strategies.
 Make informed resource allocation and investment decisions.
In the global context, industry competitiveness may differ due to local regulations,
cultural preferences, infrastructure, and economic conditions.

2.9.3. Major Tools for Industry and Competitive Analysis

A. PorterÕs Five Forces Model: This model, developed by Michael E. Porter, analyzes
five forces that shape industry competition and profitability:
1. Threat of New Entrants
o High if entry barriers are low (e.g., minimal capital requirement or
deregulated markets).
o In global markets, barriers may include tariffs, licensing, brand loyalty, or
technology.
2. Bargaining Power of Suppliers
o High if few suppliers exist or switching costs are high.
o In international markets, geographic concentration of suppliers (e.g., rare
earth minerals from China) increases their power.
3. Bargaining Power of Buyers (Customers)
o High when buyers have many options or purchase in large volumes.
o Online markets and price transparency have increased buyer power globally.
4. Threat of Substitute Products or Services

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 o Substitutes reduce demand for a product (e.g., streaming services
substituting cable TV).
o Innovation and global access to alternatives increase substitution threats.
5. Industry Rivalry
o High when there are many firms, slow market growth, or low product
differentiation.
o Intense global competition often leads to price wars, innovation races, and
brand battles.
The model helps firms decide whether the industry is attractive (high profit potential)
or unattractive (low profit potential), and which strategic responses are needed.

B. Strategic Group Analysis: Firms in the same industry may adopt different
strategies. A strategic group is a cluster of firms with similar business models or
strategies (e.g., price-based vs. quality-based players in airlines). By mapping these
groups on a grid (e.g., price vs. product range), a firm can:
 Identify direct and indirect competitors.
 Spot mobility barriers that prevent firms from switching groups.
 Understand strategic gaps and niche opportunities in the market.

C. Industry Life Cycle Analysis: Industries evolve through stages:

1. Introduction Stage – High costs, few players, low profits.
2. Growth Stage – Rapid expansion, rising profits, new entrants.
3. Maturity Stage – Slower growth, intense competition, price pressure.
4. Decline Stage – Shrinking demand, exit of weak firms.
Understanding the life cycle stage helps firms decide when to invest, harvest, or exit.
For instance, global smartphone sales have moved toward maturity, requiring innovation
or diversification to maintain profitability.

D. Key Success Factors (KSFs): KSFs are the must-haves for competing successfully
in a given industry. These could be:
 Low cost production
 Superior distribution
 Technology leadership
 Customer service excellence
 Global reach or localization
Identifying KSFs helps a firm align its core capabilities with industry demands.

2.9.4. Steps in Conducting Industry and Competitive Analysis

1. Define the industry (geographic and product boundaries).
2. Identify key competitors, suppliers, buyers, and substitutes.
3. Apply PorterÕs Five Forces to evaluate competitive pressure.
4. Conduct strategic group mapping to locate firmÕs relative position.
5. Assess industryÕs life cycle stage and emerging trends.
6. Identify KSFs needed to succeed in the market.
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 7. Draw conclusions about industry attractiveness and strategic implications.

2.9.5. Example: Competitive Analysis of the Global Airline Industry

Force Analysis
 Threat of New Moderate – high capital required, but low cost
Entrants - carriers have emerged
High – limited aircraft manufacturers and fuel
 Supplier Power
suppliers
High – price-sensitive customers, online booking
 Buyer Power
comparison tools
 Threat of Moderate – railways, videoconferencing in business
Substitutes travel
 Rivalry Among Very High – price wars, frequent promotions, loyalty
Firms battles
KSFs: Cost control, brand loyalty, route network, punctuality, fuel hedging.

2.10. Competitive Intelligence (CI)

2.10.1. Meaning:
Competitive Intelligence (CI) is the systematic process of gathering, analyzing, and
applying information about competitors, market trends, customer preferences, and
external business environments. It helps organizations make informed strategic
decisions by understanding what competitors are doing, how the industry is evolving, and
where opportunities or threats may arise.
Unlike corporate espionage, CI is ethical and legal, relying on publicly available data,
industry reports, news, websites, customer feedback, and social media.

2.10.2. Purpose of Competitive Intelligence: The main objective of CI is to help

businesses become more proactive than reactive. It enables firms to:
 Anticipate competitor strategies and market moves.
 Identify emerging industry trends and market shifts.
 Understand customer behavior and changing expectations.
 Benchmark performance against best practices.
 Develop winning strategies for pricing, product development, marketing, and
global expansion.
For multinational corporations (MNCs), CI is especially critical because global markets
are complex, fast-changing, and highly competitive.

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2.10.3. Key Components of Competitive Intelligence

A. Competitor Profiling: Gathering detailed information on key competitors – their

structure, strengths, weaknesses, strategies, pricing models, market share, and
customer base. This includes both direct and indirect competitors operating in domestic
and global markets.
B. Market Intelligence: Understanding overall industry dynamics: market size, growth
rates, customer trends, regulatory developments, technological innovations, and
geographic opportunities.
C. Customer Intelligence: Collecting insights into customer needs, buying behavior,
preferences, and pain points. Helps businesses improve offerings and develop
customer-focused strategies.
D. Product and Innovation Tracking: Monitoring new product launches, R&D
breakthroughs, patents, and technological changes introduced by competitors. This
supports product differentiation and early adaptation.
E. Strategic Early Warning: Identifying potential disruptions or threats early, such
as a new entrant, a merger or acquisition, or regulatory shifts, enabling the firm to act
quickly.

2.10.4. Competitive Intelligence Process

The CI process involves the following key steps:
Step 1: Planning and Direction
Define the goals of intelligence – What do you want to know? (e.g., competitor expansion
plans, new product pricing)
Step 2: Data Collection
Gather data from various legal and ethical sources, such as:
 Company websites, annual reports, and press releases
 Trade publications and analyst reports
 News media, social media, blogs
 Customer reviews and market surveys
 Industry conferences and exhibitions
Step 3: Data Analysis
Convert raw data into meaningful insights using analytical tools like SWOT,
benchmarking, trend analysis, and scenario planning.
Step 4: Dissemination
Share the insights with decision-makers in a clear, concise, and actionable format
(e.g., dashboards, reports, alerts).
Step 5: Feedback and Review
Evaluate how the intelligence was used and how it improved decision-making. Refine
processes for continuous improvement.

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2.10.5. Tools and Techniques in Competitive Intelligence
 SWOT Analysis: To compare your strengths and weaknesses with competitors.
 Benchmarking: To evaluate performance against industry leaders.
 PorterÕs Five Forces: To assess industry competitiveness.
 Product Comparison Grids: For tracking competitor features and benefits.
 Trend Analysis and Forecasting Models: For predicting future scenarios.
 AI and Big Data Tools: To automate collection and detect hidden patterns
(especially in global markets).

2.10.6. Applications of Competitive Intelligence in Global Strategy: In global

markets, CI supports:
 Market Entry Decisions: Helps identify favorable countries or regions for
expansion.
 Localization Strategy: Adapts products to local consumer needs based on
competitor offerings.
 Pricing Strategy: Enables competitive yet profitable pricing based on rivals' data.
 Risk Mitigation: Anticipates and responds to changes in international regulations
or economic conditions.
 Merger & Acquisition Intelligence: Evaluates target firmsÕ strategic fit and
competitive position.

2.10.7. Advantages of Competitive Intelligence

 Informs better strategic planning
 Encourages proactive responses to competitive threats
 Supports innovation and customer-centricity
 Enhances decision-making quality
 Reduces risk and uncertainty in complex global environments

2.10.8. Challenges of Competitive Intelligence

 Data Overload: Filtering meaningful insights from massive information.
 Accuracy and Timeliness: Old or misleading data may hurt decision-making.
 Ethical Boundaries: Must stay within legal frameworks and avoid unethical
practices.
 Cultural Sensitivity: Global data may require context-specific interpretation.

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2.11. Michael PorterÕs Industry Analysis

Michael PorterÕs Industry Analysis also known as Porter's Five Forces Framework,
which is a fundamental model used in Global Strategic Management for analyzing
industry attractiveness and competitiveness:

Developed by Michael E. Porter, the Five Forces model helps organizations understand
the competitive forces shaping an industry and how these forces influence
profitability. It goes beyond looking at direct competitors by analyzing all factors that
impact competition — including buyers, suppliers, new entrants, and substitutes.
Porter argued that industry structure, not just company strategy, determines long-
term profitability. By using this model, businesses can make better strategic decisions
such as entering new markets, launching products, or defending market positions. It
includes:

1. Threat of New Entrants: This force assesses how easy or difficult it is for new
competitors to enter the industry. When entry barriers are low, the threat is high,
increasing competition and reducing profitability for existing firms.
Barriers to entry include:
 High capital requirements
 Strong brand loyalty of existing players
 Government regulations and licenses
 Access to distribution channels
 Economies of scale
 Technological know-how
Global Relevance: In global markets, local protectionism or foreign investment rules can
either deter or encourage new entrants. For instance, countries like India or China may
have strict policies that protect domestic firms.

2. Bargaining Power of Suppliers: Suppliers can influence prices, quality, and

availability of inputs, impacting firm profitability. The more concentrated or powerful
the supplier group, the greater its ability to influence terms.
Supplier power is high when:
 Few suppliers dominate the market
 No substitutes exist for the input
 Switching suppliers is costly
 The supplierÕs product is critical to business
Global Relevance: Dependence on foreign suppliers (e.g., microchips from Taiwan or oil
from the Middle East) increases exposure to global supply risks, making supplier power
a major concern in global strategy.

3. Bargaining Power of Buyers (Customers): This force analyzes the ability of buyers
to influence pricing and demand better value or service. If buyers have high power, they

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can pressure firms to lower prices, offer more features, or improve quality — reducing
overall profitability.
Buyer power is high when:
 Few buyers purchase in large volumes
 Products are standardized or undifferentiated
 Switching costs are low
 Buyers can backward integrate (produce the product themselves)
Global Relevance: In todayÕs connected world, customers can easily compare prices
and reviews online across global sellers, increasing their power significantly — especially
in e-commerce and retail sectors.

4. Threat of Substitute Products or Services: Substitutes are products or services

from outside the industry that meet similar needs. A high threat of substitutes limits
the price firms can charge and pushes them to innovate.
Threat is high when:
 Substitute offers a better price-performance trade-off
 Switching costs are low
 Customers are willing to try alternatives
Global Relevance: Technology and globalization increase the availability of substitutes.
For example, online learning is a substitute for traditional universities, especially in
developing markets.

5. Industry Rivalry (Competitive Rivalry Among Existing Firms):

This force measures the intensity of competition among current players in the industry.
High rivalry leads to price wars, increased marketing costs, and reduced profitability.
Rivalry is high when:
 Many competitors are of similar size
 Industry growth is slow
 Products are not differentiated
 Exit barriers are high
Global Relevance: Global industries like airlines, automotive, and consumer electronics
face intense rivalry due to numerous international players, price sensitivity, and low
customer switching costs.

2.11.2. Applying PorterÕs Five Forces in Global Strategic Management

 Helps MNCs decide which countries or regions to enter, based on industry

attractiveness.
 Assists in choosing entry modes (e.g., joint venture, acquisition, greenfield).
 Supports competitive positioning by identifying the most threatening forces and
adapting strategy accordingly.
Example: A mobile phone company entering Africa must evaluate local telecom
regulations (entry barriers), suppliers of hardware, competition from global and local
brands, and customer power driven by affordability.
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2.12. Strategic Advantage Profile (SAP)

2.12.1. Meaning: The Strategic Advantage Profile (SAP) is a systematic method of

identifying and evaluating an organizationÕs internal strengths and strategic
capabilities, which are critical for success in a given environment. It provides a clear
picture of what gives the firm a competitive edge and highlights areas where
improvements are needed.

SAP is often used alongside environmental analysis tools like SWOT or ETOP to
determine how well the companyÕs internal factors align with external opportunities and
threats. It focuses on factors that can be leveraged for building a sustainable
competitive advantage.

2.12.2. Purpose of Strategic Advantage Profile: The primary goal of SAP is to:
 Recognize the core competencies that differentiate a firm from its competitors.
 Understand the relative strengths and weaknesses of internal resources and
capabilities.
 Help match the organizationÕs strengths with external opportunities.
 Provide a foundation for strategy formulation and resource allocation.
 Guide global expansion, diversification, and strategic partnerships.

2.12.3. Key Areas Covered in SAP

SAP involves evaluating several internal functional and strategic areas:

A. Marketing Capabilities: Includes brand strength, distribution reach, customer

loyalty, pricing power, and market research capabilities. A strong marketing team helps
in capturing customer attention, especially in competitive or foreign markets.

B. Financial Strength: Assesses the firm's ability to generate profits, manage debt,
invest in new projects, and sustain operations during downturns. Financial health is vital
for funding global expansions, R&D, and innovation.

C. Operations and Production Efficiency: Looks at manufacturing quality, economies

of scale, supply chain efficiency, and inventory management. High efficiency can be a
strategic edge in cost-sensitive or mass-production industries.

D. Human Resource Competence: Evaluates the skills, training, productivity,

leadership, and cultural adaptability of employees. In global strategic management,
cross-cultural competence and international HR practices are highly valuable.

E. Technological Capability: Involves innovation capacity, automation, use of digital

tools, and research and development (R&D). Technology leadership can lead to first-
mover advantage and product differentiation.

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F. Strategic Management Process: Assesses the organizationÕs ability to plan,
implement, and control strategic initiatives. A well-structured strategic process ensures
better responsiveness to dynamic global environments.

G. Organizational Culture and Leadership: Reviews the leadership style, decision-

making flexibility, adaptability, and vision alignment across departments and regions. A
cohesive culture supports smoother execution of global strategies.

2.12.4. Steps to Prepare a Strategic Advantage Profile

1. Identify Key Areas – List internal functional areas that influence strategic
strength (e.g., HR, finance, R&D, etc.).
2. Evaluate Each Area – Use qualitative ratings (e.g., Strong, Average, Weak) or
quantitative scores (e.g., on a scale of 1 to 5).
3. Benchmark Against Competitors – Compare internal performance with industry
standards or best practices.
4. Summarize Key Strengths and Weaknesses – Create a profile chart or table
highlighting strategic advantages and areas for improvement.

2.12.5. Difference Between SAP and SWOT

SWOT Analysis Strategic Advantage Profile (SAP)
Focuses only on internal strategic
Includes both internal and external factors
strengths
Broader, high-level analysis Detailed and function-specific evaluation
Helps identify strategy direction Helps assess strategic readiness

2.13. Comparative Advantage and Core Competence

2.13.1. Comparative Advantage

Comparative Advantage is an economic concept that explains how a country, firm, or

organization can produce a good or service at a lower opportunity cost than others.
Introduced by economist David Ricardo, it forms the basis of international trade by
encouraging nations or firms to specialize in areas where they are relatively more
efficient.

In the context of business strategy, a firm has a comparative advantage when it can
deliver products or services more efficiently, not necessarily better or cheaper in
absolute terms, but at lower relative cost compared to competitors.
This allows firms or countries to:
 Specialize in specific functions (e.g., manufacturing, R&D, design).

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  Trade or outsource other functions that they are less efficient at.
 Maximize global productivity and gain from trade or partnerships.

Global Example
 India has a comparative advantage in IT services due to a large pool of English-
speaking engineers and lower labor costs.
 Germany has a comparative advantage in automobile engineering due to its highly
skilled workforce and advanced technologies.
These comparative advantages guide strategic decisions on outsourcing, offshoring,
and international alliances.

2.13.2. Core Competence

Core Competence is a strategic management concept introduced by Prahalad and Hamel.

It refers to the unique combination of skills, technologies, and resources that provides
a firm with a competitive advantage and is difficult for competitors to imitate.

Examples of Core Competence

 Apple: Design excellence and seamless hardware-software integration.
 Google: Superior search algorithms and data analytics capabilities.
 Toyota: Lean manufacturing and quality management systems.
 Amazon: E-commerce logistics and customer-centric innovation.

Strategic Use of Core Competence

 Helps in building and sustaining competitive advantage.
 Guides resource allocation and product development.
 Forms the basis for strategic alliances, mergers, and diversification.
 Enables firms to enter new markets or industries with confidence.

2.13.3. Difference Between Core Competence and Comparative Advantage

Aspect Comparative Advantage Core Competence
Strategic management theory
Origin Economic theory (Ricardo)
(Prahalad & Hamel)
Level of
Country or firm level Firm or business unit level
Application
Unique internal capability or
Focus Lower relative opportunity cost
resource
Can be temporary or driven by
Duration Long-term and sustainable
external factors
Imitability May be replicable by others Hard to imitate
Supports decisions like outsourcing Forms the foundation of long-
Strategic Role
or specialization term competitive strategy

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2.14. TOWS Matrix

TOWS Matrix is a strategic management tool that helps turn internal and external
analysis into actionable strategies. The TOWS Matrix is an advanced strategic analysis
framework that builds on the traditional SWOT analysis by systematically matching a
companyÕs Threats, Opportunities, Weaknesses, Strengths to develop concrete
strategic options.
While SWOT identifies the internal and external factors, TOWS goes a step further
by helping organizations strategize based on these factors. It emphasizes action-
oriented thinking, especially helpful in competitive or global environments.

2.14.2. Purpose of TOWS Matrix: The purpose of the TOWS Matrix is to:
 Translate SWOT insights into strategic choices.
 Help identify how a firm can use its strengths to exploit opportunities or counter
threats.
 Identify how it can overcome weaknesses using available opportunities or
defenses against threats.
 Improve the process of strategy formulation, especially in complex, dynamic, or
global markets.

2.14.3. Structure of the TOWS Matrix

The TOWS Matrix is a 2x2 matrix that combines internal (S/W) and external (O/T)
factors to produce four types of strategies:
Opportunities (O) Threats (T)
Strengths (S) SO Strategies ST Strategies
Use strengths to exploit Use strengths to avoid or counter
opportunities threats
Weaknesses
WO Strategies WT Strategies
(W)
Overcome weaknesses by using Minimize weaknesses to avoid
opportunities threats

2.14.4. Types of Strategies in the TOWS Matrix

A. SO (Strength–Opportunity) Strategies: These are offensive strategies that use

internal strengths to take advantage of external opportunities.
Example: A company with a strong R&D team (strength) may use this to innovate and
launch new eco-friendly products (opportunity in green markets).

B. ST (Strength–Threat) Strategies: These strategies use strengths to minimize or

avoid threats in the external environment.

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Example: A firm with a strong global brand (strength) may defend against a rising
competitor (threat) by increasing marketing and loyalty campaigns.

C. WO (Weakness–Opportunity) Strategies: These are improvement strategies,

where the firm tries to overcome internal weaknesses by leveraging external
opportunities.
Example: A firm with weak online presence (weakness) may partner with an e-commerce
platform (opportunity) to reach more customers.

D. WT (Weakness–Threat) Strategies: These are defensive strategies that aim to

minimize internal weaknesses and avoid external threats — often used when the firm
is in a vulnerable position.
Example: A company facing high costs (weakness) and increasing price competition
(threat) may outsource production to lower-cost regions.

2.14.5. Strategic Applications of TOWS Matrix

 Helps firms prioritize strategies based on internal and external realities.
 Aids in balancing aggressive and defensive tactics.
 Useful for diversification, market entry, cost leadership, and differentiation
strategies.
 Particularly valuable in complex global environments where firms face mixed
strengths and threats.

2.15. International Product Life Cycle (IPLC)

The International Product Life Cycle (IPLC) is a theory developed by Raymond Vernon
in the 1960s. It explains how a product evolves through different stages of its life
cycle—introduction, growth, maturity, and decline—across international markets.
The IPLC model shows how products initially introduced in developed countries
eventually diffuse to developing countries, and how production shifts globally over time
due to cost pressures, demand patterns, and competitive forces.

2.15.2. Purpose and Importance: The IPLC is used to understand:

 When and where to enter foreign markets
 How to relocate production as a product matures
 The changing nature of competition in global markets
 The role of cost efficiency and innovation in sustaining global competitiveness
This helps Multinational Corporations (MNCs) in strategic planning, particularly in
product development, market expansion, and global outsourcing.

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2.15.3. Stages of the International Product Life Cycle

The IPLC consists of four major stages:

Stage 1: Introduction (New Product Stage)
 The product is innovated and launched in a developed country (usually the home
country of the firm).
 High R&D investment, design complexity, and uncertain demand.
 Focus is on domestic market, with limited international interest.
 Production is in the home country due to the need for technical expertise and
close customer feedback.
Strategy:
 Emphasize product uniqueness and premium pricing.
 Use skimming strategy to recover R&D costs.
 Export on a limited scale to similar (developed) markets.

Stage 2: Growth (Foreign Demand Begins)

 Demand begins to grow in foreign developed markets, especially among consumers
with similar preferences and incomes.
 Firms start exporting to these countries.
 Competitors from other developed countries may imitate the product.
 Production may be outsourced or franchised in high-demand countries to meet
growing needs.
Strategy:
 Expand into international markets (Europe, Japan, etc.).
 Focus on brand building and market penetration.
 Invest in scaling production and improving efficiency.

Stage 3: Maturity (Standardization & Cost Pressure)

 The product becomes standardized and is well understood by consumers.
 Price becomes a key differentiator, and competition intensifies globally.
 Production moves to low-cost developing countries to reduce expenses.
 Developed countries may begin importing the product they once exported.
Strategy:
 Shift focus to cost leadership and mass production.
 Expand into emerging markets.
 Consider joint ventures or subsidiaries in low-cost regions.

Stage 4: Decline (Saturation and Obsolescence)

 Demand declines in developed countries due to market saturation or technological
obsolescence.
 The product continues in developing countries for a while where demand lags
behind.
 Eventually, newer products replace the old globally.

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Strategy:
 Harvest remaining value by focusing on laggard markets.
 Exit or reinvest resources into newer innovations.
 Engage in product modification or repositioning, if viable.

2.15.4. IPLC in Global Strategic Management

Strategic Implications:
Stage Strategic Decision
Introduction Keep production in home country; protect IP rights
Growth Target similar foreign markets; scale exports
Maturity Move production offshore; compete on price and efficiency
Decline Shift focus to emerging markets; manage withdrawal carefully
This model supports international expansion, production relocation, entry timing, and
resource allocation decisions.

2.15.5. Real-Life Examples of IPLC

Example 1: Personal Computers (PCs)
 1970s–80s: PCs developed in the U.S. by IBM and Apple (Introduction)
 1990s: Spread across Europe and Japan (Growth)
 2000s: Mass production moved to China, Taiwan (Maturity)
 2010s+: Decline in developed markets due to mobile devices; continues in some
developing countries (Decline)
Example 2: Smartphones
 2007: iPhone introduced in the U.S. (Introduction)
 2010–15: Expansion to Europe and Asia (Growth)
 Now: Production moved to India, Vietnam, China (Maturity)
 Future: Basic smartphone models still sell in African markets (Late Decline for
older models)

2.15.6. Advantages of IPLC Model

 Provides a roadmap for international expansion
 Helps in anticipating global production shifts
 Supports strategic timing of market entry and exit
 Aids in designing global supply chain strategy

2.15.7. Limitations of IPLC

 Assumes a linear and predictable path, which may not reflect real-world
dynamics.
 New technologies often disrupt the cycle (e.g., leapfrogging in mobile banking).
 Ignores digital and service-based products, where production location is less
relevant.
 Rapid globalization and simultaneous global launches reduce the time gaps
assumed by the model.
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