A major step in weighing international strategic options is the internal analysis. This analysis determines which areas of the firms operations represent strengths or weaknesses compared to competitors, so that the firm may use that information to its strategic advantage.
The internal analysis helps managers to focus on the companys resources and operations and on global synergies. The strengths and weaknesses of the firms 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.
KSF factors increasingly involve superior technological capability as well as other strategic advantages such as effective distribution channels superior promotion capabilities, a low-cost production and sourcing position, a superior patent and new product pipeline, and others.
Companies have both strengths and weaknesses. A companys challenge is to identify both and then 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 distinctive competence for the firm.
If a company is conducting an internal audit to determine whether to start international ventures or to improve its ongoing operations abroad, then certain operational issues must be taken into account. These issues are: the difficulty of obtaining marketing information in many countries, the often poorly developed financial markets, institutional voids in target countries, the complexities of exchange rates and government controls and poor infrastructure.
At this point, the firms managers perform a competitive analysis to assess the firms capabilities and key success factors compared to those of its competitors. They must judge the relative current and potential competitive position of firms in that market and location whether that is a global position or that for a specific country or region. Managers must also specifically assess their current competitors global and local for the proposed market.
The firms managers also need to consider the strategic intent of competing firms and what might be their future moves. This process enables the strategic planners to determine where the firm has distinctive competencies that will give it strategic advantage as well as what direction might lead the firm into a sustainable competitive advantage that is, one that will not be immediately eroded by emulation. The result of this process will also help to identify potential problems that can be corrected or that may be significant enough to eliminate further consideration of certain strategies.