Chapter 8 looking at international strategies
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Chapter 8 Looking at International Strategies . OBJECTIVES . 1. Define international strategy and identify its implications for the strategy diamond . 2.

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Chapter 8 Looking at International Strategies

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Chapter 8 looking at international strategies

Chapter 8Looking at International Strategies


Objectives

OBJECTIVES

1

  • Define international strategy and identify its implications for the strategy diamond

2

  • Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage

  • Use the CAGE framework to identify desirable international arenas

3

  • Describe different vehicles for global expansion

4

5

  • Apply different international strategy configurations

6

  • Outline the international strategy implications of the static and dynamic perspectives


Dell goes to china

  • Strategic decisions

  • U.S.

  • China

  • Dell becameChina’s largest computer system provider in just5 years

  • Vehicles

  • Assemble and distributeitself

  • Partner

  • Staging

  • Consumersfirst, then corporations

  • Corporationsfirst

DELL GOES TO CHINA

  • If we’ve not in what will soon be the second-biggest PC market in the world, then how can Dell possibly be a global player?


International strategy and the strategy diamond

  • Staging

  • Arenas

  • When will we go international?

  • How quickly will we expand into international markets?

  • In what sequence will we implement our entry tactics?

  • Which geographic areas will we enter?

  • Which channels will we use in those areas?

INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND

  • Arenas

  • Vehicles

  • Which international market-entry strategies will we use? Alliances? Acquisitions? Greenfield investments?

  • Economiclogic

  • Staging

  • Vehicles

  • Differentiators

  • Economic logic

  • Differentiators

  • How does our international strategy lower our costs, raise the prices we can charge, or create synergies between our business?

  • How does being international make our products more attractive to our customers?


Pros vs cons of international expansion

PROS VS. CONS OF INTERNATIONAL EXPANSION

  • Many international expansions fail

  • Why?

  • Pepsi’s ambitious expansion in the 1990s resulted in a decreased international market share

  • Wal-Marts international businesses perform poorly relative to its U.S. business

  • Newness can be a disadvantage (e.g., your firm must moveup the learning curve)

  • Foreignness can be a liability (e.g., your managers may notunderstand local culture)

  • Governance and coordination costs increase as you manage from a distance


Key factors global economies of scale

  • Global expansion may be attractive if it allows you to leverage fixed assets over new markets

  • Pharmaceutical firms such as Pfizer, can leverage large R&D budgets

  • CitiGroup, McDonald’s, and Coca-Cola can leverage brands

  • MITY can leverage its excess capacity to produce chairs and thereby reduce average costs

KEY FACTORS – GLOBAL ECONOMIES OF SCALE

  • Key factors

  • Global economies of scale


Key factors location

  • Choosing the right location canprovide advantages in terms of

  • Input costs

  • Competitors

  • Demand conditions

  • Regulatory environment

  • Presence of complements

  • A five-forces analysis can help revealthe attractiveness of a location

KEY FACTORS – LOCATION

  • Key factors

  • Global economies of scale

  • Location


Key factors multipoint competition

KEY FACTORS – MULTIPOINT COMPETITION

  • Expanding into a new market may provide an opportunity for a “stronghold assault”

  • For example, French tire maker Michelin had negligible presence in the U.S. in the 1970s. It learned of Goodyear’s plans to expand into Europe, so it launched a counter attack. It started selling tires in the U.S. at or below cost, and thereby forced Goodyear to drop prices and cut profits in its core market

  • Key factors

  • Global economies of scale

  • Location

  • Multipoint competition


Key factors learning and knowledge sharing

KEY FACTORS – LEARNING AND KNOWLEDGE SHARING

  • Expanding into a new market can create opportunities to innovate, improve existing products in existing markets, or develop ideas for new markets

  • SC Johnson, for example, used technology developed in its European operation (a product for repelling mosquitoes in homes) to create the “ Glade Plug-ins” air freshener in the U.S.

  • Key factors

  • Global economies of scale

  • Location

  • Multipoint competition

  • Learning and knowledge sharing


The cage distance framework

  • Absence of colonial ties

  • Absence of shared monetary or political association

  • Political hostility

  • Government policies

  • Institutional weakness

  • Physical remoteness

  • Lack of a common border

  • Lack of sea or river access

  • Size of country

  • Weak transportation or communication links

  • Differences in climates

  • Differences in consumer incomes

  • Differences in costs andquality of

    • Natural resources

    • Financial resources

    • Human resources

    • Infrastructure

    • Intermediate inputs

    • Information or knowledge

  • Government involvement is highin industries that are

    • Producers of staple goods (electricity)

    • Producers of other “entitlements” (drugs)

    • Large employers (framing)

    • Large suppliers to government (mass transportation)

    • National champions (aerospace)

    • Vital to national security (telecom)

    • Exploiters of natural resources (oil, mining)

    • Subject to high sunk costs (infrastructure)

  • Products have a low value-of-weight or bulk ratio (cement)

  • Products are fragile or perishable (glass, fruit)

  • Communications and connectivity are important (financial services)

  • Local supervision and operational requirements are high (many services)

  • Nature of demand varies with income level (cars)

  • Economies of standardization or scale are important (mobile phones)

  • Labor and other factor cost differences are salient (garments)

  • Distribution or business systems are different (insurance)

  • Companies need to be responsive and agile (home appliances )

THE CAGE DISTANCE FRAMEWORK

  • Cultural distance

  • Administrative distance

  • Geography distance

  • Economic distance

  • Attributes creating distance

  • Different languages

  • Different ethnicities; lack of connective ethnic or social networks

  • Different religions

  • Different social norms

  • Industries or products affected by distance

  • Products have high linguistic content (TV)

  • Products affect cultural or national identity of consumers (foods)

  • Product features vary in terms of size (cars), standards (electrical appliances), or packaging

  • Products carry country-specific quality associations (wines)

Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.


Administrative distance

  • Legal concerns for US firms

ADMINISTRATIVE DISTANCE

  • Free Trade

  • Agreements

  • FTA’s

  • Open foreign markets to US exports

  • Antidumping

  • Import Laws

  • Anti-bribery provisions

  • Foreign Corrupt

  • Practices Act

  • Patent Cooperation Treaty

  • USPTO

  • Intellectual

  • Property

  • Protection


Administrative distance1

ADMINISTRATIVE DISTANCE

  • Decreased distance between US, Mexico, and Canada

  • Historical Political Hostilities

  • NAFTA

Increased distance between Cuba and US


Economic distance

ECONOMIC DISTANCE

  • Deliberate Targeting

  • “Bottom of the pyramid”

  • 4 billion people

  • Ex: shampoo for

  • cold water


Choice of entry modes

  • Nonequity modes

  • Equity (FDI) modes

  • Wholly ownedsubsidiaries

  • Contractual agreements

  • Alliances and joint ventures (JVs)

  • Exports

  • Greenfieldinvestments

  • Licensing/franchising

  • Direct exports

  • Minority JVs

  • Acquisition

  • Indirect exports

  • Turnkey projects

  • 50/50 JVs

  • Others

  • Others

  • Contracted R&D

  • Majority JVs

  • Comarketing

CHOICE OF ENTRY MODES

  • Choice of entry mode

Strategic alliances (within dotted areas)

Source: Adapted from Pan, Y. and D. Tse, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, 31 (2000), 535-545


Vehicles for entering foreign markets

  • Honda’s initial entry into the U.S. market

  • Bridgestone’s acquisition of U.S.-based Firestone

  • FDI through acquisition

  • FDI

  • Ford-MazdaGenentech-Hoffman LaRoche

  • Alliance

  • Exports

  • Champion International’s paper exports through independent brokers

  • KFC’s franchisees in India

  • Alliance and exports

VEHICLES FOR ENTERING FOREIGN MARKETS

  • 100%

  • Degree of ownership control overactivities per-formed in the foreign market

  • 0%

  • 100% Exports

  • 100% Local

  • Exports versus local production

Source: Examples drawn from in Gupta, A., and V. Govindarajan, “Managing Global Expansion: A Conceptual Framework,” businessHorizons, March/April 2002, 45-54


Exporting options

EXPORTING OPTIONS

  • Most common option in relatively close markets and for productswith lower shipping costs

  • Shipping

  • A firm may form an alliance or franchise giving a local partner the right and responsibility to operate the firm’s business in their home market (e.g., Burger King’s expansion in Europe)

  • Licensing and franchising

  • A firm may enter Turnkey project agreements, R&D contracts, or joint-marketing initiatives (e.g., a German firm Bayer AG contracts large R&D projects to a U.S. firm)

  • Specialagreements


Alliances

  • U.S. firm

  • Chinese Firm

  • … so U.S. companies formed alliances to gain access

ALLIANCES

  • Until recently, China did not allow non-Chinese companies in China …

û


Foreign direct investment

  • Foreigncompany

  • Localcompany

  • Home country/market

FOREIGN DIRECT INVESTMENT

  • Acquires

  • South African Breweries purchase Miller Brewing in 2002 to gain access to U.S. customers and brewing capacity

  • DaimlerChrysler and BMW each invested $250 million to start local factories in Brazil


Importing

IMPORTING

  • Importing is often a “stealth” form of internationalization because a firm will claim to have no international operations and yet directly or indirectly base production or service delivery abroad

  • Country A

  • Production

  • Country B

  • “Domestic”company

  • Home country

  • Customerservice

  • Country C

  • Logistics


International strategy configurations

INTERNATIONAL STRATEGY CONFIGURATIONS

  • Relatively few opportunities to gainglobal efficiencies

  • Many opportunities togain global efficiencies

  • Relatively highlocalresponsiveness

  • Multinational configurationBuild flexibility to respond to national difference through strong, resourceful, entrepreneurial, and somewhat independent national or regional operations. Requires decentralized and relatively self-sufficient units

  • Example : MTV initially adopted an international configuration (using only American programming in foreign markets) but then changed its strategy to a multinational one. It now tailors its Western European programming to each market, offering eight channels, each in a different language

  • Transnational configurationDevelop global efficiency, flexibility, and worldwide learning. Requires dispersed, interdependent, and specialized capabilities simultaneously

  • Example : Nestle has taken steps to move in this direction, starting first with what might be described as a multinational configuration

  • Today, Nestle aims to evolve from a decentralized, profit-center configuration to one that operates as a single, global company. Firms like Nestle have taken lessons from leading consulting firms such as McKinsey and Company, which are globally dispersed but have a hard-driving, one-firm culture at their core.

  • Relative lowlocalresponsiveness

  • International configuration Exploit parent-company knowledge and capabilities through worldwide diffusion, local marketing, and adaptation. The most valuable resources and capabilities are centralized; others, such as local marketing and distribution, are decentralized

  • Example : When Wal-Mart initially set up its operations in Brazil, it used its U.S. stores as a model for international expansion

  • Global configurationBuild cost advantages through centralized, global-scale operations . Requires centralized and globally scaled resources and capabilities

  • Example : Companies such as Merck and Hewlett-Packard give particular subsidiaries a worldwide mandate to leverage and disseminate their unique capabilities and specialized knowledge worldwide

Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)


Born global firms

BORN – GLOBAL FIRMS

  • More and more firms, even young, small ones, have operations that bridge national borders

  • Logitech

  • Founded by

  • R&D

  • Production

  • 30% ofglobal PC mouse busi-ness by1989

  • 2 Italians

  • California

  • Ireland

  • 1 Swiss

  • Switzerland

  • Taiwan


How to succeed as a global start up

HOW TO SUCCEED AS A GLOBAL START-UP

  • If yes, Put together tools you will need to move into global market

  • Consider if you should be aglobal start-up

  • Do you need human resources from other countries to succeed?

  • Strong management team with inter-national experience

  • Do you need financial capital fromother countries to succeed?

  • Broad and deep international networkamong suppliers, customers,and complements

  • If you go global, will target customers prefer your services over competitor's?

  • Preemptive marketing or technology to provide first-mover advantage

  • Can you put an international system in place more quickly than domestic competitors?

  • Strong intangible assets

  • Do you need global scale and scope to justify the financial and human capital investment?

  • Ability to keep customers locked in by linking new products and services to core business, while you innovate

  • Will a purely domestic focus now make it harder for you to go global in the future?

  • Close worldwide coordination and com-munication among business units, suppliers, complements and customers


Developing a global mind set

DEVELOPING A GLOBAL MIND-SET

  • Global mindset

  • Having an appreciation for the differences between countries and people and seeing these differences as opportunities

  • Having developed skills for managing diverse teams in a world-wide work force

  • Global skills

  • Global perspective


Expatriates and inpatriates

  • Expatriates

  • From the home country

  • Inpatriates

  • From the local

  • or host country

EXPATRIATES AND INPATRIATES


How would you do that

  • Tactic

  • Action steps

1

  • Teams

  • ?

2

  • Training

  • ?

3

  • Transfers

  • ?

4

  • ???

  • ?

HOW WOULD YOU DO THAT?

  • If you were CEO, how would you build a global perspective in your executives?

  • Fewer than 15% of executives have substantive international experience


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