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Chapter 8 Looking at International Strategies . 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. 3.

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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

3

  • Describe different vehicles for international expansion

4

  • Apply different international strategy configurations
OBJECTIVES

5

  • 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’re not in what will soon be the second-biggest PC market in the world, then how can Dell possibly be a global player?
international presence of selected multinational corporations mncs

1

  • 99
  • 32
  • 68
  • 52
  • 48
  • 59
  • 41
  • 65
  • 35
  • 96
  • 4
INTERNATIONAL PRESENCE OF SELECTED MULTINATIONAL CORPORATIONS (MNCs)

What is international strategy? Planning for future cross-border activities.

  • Sales in domestic market Percent
  • Sales in foreign markets Percent
  • Domesticmarket
  • Total sales$ Millions
  • Company
  • Products
  • Nokia
  • Finland
  • Cell phones
  • 37,031
  • Audi
  • Germany
  • Automobiles
  • 29,378
  • Clarion
  • Japan
  • Audioequipment
  • 1,540
  • Apple
  • U.S.
  • Computers,electronics
  • 8,279
  • eBay
  • U.S.
  • Online auctions
  • 2,165
  • Papa John’s
  • U.S.
  • Pizza
  • 917

International presence varies widely

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?
why expand internationally
WHY EXPAND INTERNATIONALLY?
  • Domestic markets in developed countries have slow growth, while capital markets expect high growth
  • The pressure for cost reductions and efficiency continues to grow
  • Necessitates examining cost savings by sourcing across borders
  • Chicken and egg problem
  • Knowledge is not uniformly distributed around the world
  • Creates opportunities for knowledge rich countries
  • Customers are becoming global (both consumers and corporations)
  • Competitors are globalizing
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-Mart’s 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
KEY FACTORS – LOCATION
  • Key factors
  • Global economies of scale
  • Location
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.

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
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,” business Horizons, 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
how would you do that laura ashley
HOW WOULD YOU DO THAT? – LAURA ASHLEY
  • In the early 1990s, U.S. executive Jim Maxmin was brought in as CEO to turn around Laura Ashley.
  • The company’s distribution system was in shambles and Maxmin needed to fix it
  • Maxmin realized he needed a partner that satisfies 3 key conditions
  • Why were each of these three conditions important?
  • Who did Maxmin choose as a partner?
  • Complementary needs and competencies
  • Similar management styles and operating systems
  • Divergent strategic objectives
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
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
summary

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

3

  • Describe different vehicles for international expansion

4

  • Apply different international strategy configurations

5

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