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Motivations for International Expansion Economies of Scale or Learning Expanding size or scope of markets helps to achieve economies of scale in manufacturing, marketing, R&D or distribution Can spread costs over a larger sales base Increase profit per unit

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motivations for international expansion
Motivations for International Expansion

Economies of Scale or Learning

  • Expanding size or scope of markets helps to achieve economies of scale in manufacturing, marketing, R&D or distribution
    • Can spread costs over a larger sales base
    • Increase profit per unit

Examples: Japanese electronics or automobile manufacturers

-

slide2
Return on Investment
  • Large investment projects may require global markets to justify the capital outlays
  • Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators

Example:Aircraft manufacturer Boeing

slide3
Location Advantages
  • Low cost markets may aid in developing competitive advantage
  • May achieve better access to:

Raw materials Key customers

Lower cost labor Energy

Key suppliers Natural resources

  • Benchmarking products and technology in a state-of-the-art market
what kind of business model effectively serves the needs of consumers
What kind of business model effectively serves the needs of consumers?
  • understand the market pyramid to avoid becoming a small, high-end niche player
what kind of business model effectively serves customers cont d
What kind of business model effectively serves customers? (cont’d)
  • Rethink price-performance
    • consumers are much more focused on price-performance
  • Rethink brand management
    • don’t overestimate Westernization
  • Rethink costs of market building
    • changing developed habits is difficult and expensive
  • Rethink product design
    • must reflect differences in use, distribution, and selling
  • Rethink packaging
will local or expatriate leadership be most effective
Expatriates are effective because they:

transfer technology and management practices

conduits of information

provide credibility at HQ

But, they also have problems, such as:

cultural and language difficulties limit interaction with locals and effectiveness

less able with local politics

need many years in country to be most effective

Will Local or Expatriate Leadership be most effective?
slide9
Locals have different abilities, such as
  • better appreciation of local nuances
  • deeper commitment to market

But,

  • need “share of voice”
  • many not have “soft technology”
international entry strategies
International Entry Strategies
  • Exporting
  • Licensing
  • Strategic Alliances
  • Acquisitions
  • Wholly-owned subsidiary
exporting
Advantages

No need to establish operations in other countries

Establish distribution channels through contractual relationships

Disadvantages

May have high transportation costs

May encounter high import tariffs

May have less control on marketing and distribution

Difficult to customize products

Exporting
licensing
Advantage

Least risky way to enter a foreign market because licensee takes risks in manufacturinginvestments

Disadvantages

Licensing firm loses control over product quality and distribution

Relatively low profit potential

Risk if licensor learns technology and competes when license expires

Licensing
  • Firm authorizes another firm to manufacture and sell its products. Licensing firm is paid a royalty on each unit produced and sold.
strategic alliances
Advantage

Enable firms to shares risks and resources

Disadvantages

Difficulties in merging disparate cultures

May not understand the strategic intent of partners

Divergent goals

Costs of expatriate managers

Who owns what?

Local partners may not have adequate market knowledge

Strategic Alliances

Most involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms or politics

acquisitions
Advantage

Very Rapid

Disadvantages

Can be very costly

Legal and regulatory requirements may present barriers to foreign ownership

Usually require complex and costly negotiations

Potentially disparate corporate cultures

Acquisitions
new wholly owned subsidiary
Advantages

Achieves greatest degree of control

Potentially most profitable, if successful

Maintain control over technology, marketing and distribution

Disadvantages

Most costly and complex of entry alternatives

May need to acquire expertise and knowledge that is relevant to host country

Could require hiring host country nationals or consultants at high cost

New Wholly-Owned Subsidiary
slide16

International Corporate Strategy

When is each strategy appropriate?

High

Need for Global Integration

Low

Low

High

Need for Local Market Responsiveness

  • Pressures for Global Integration
  • commodity-type products
  • products that serve universal needs (tires, steel, hand-held calculators)
  • industries with excess capacity
  • when consumers are powerful and face low switching costs
  • Pressures for Local Mkt Responsiveness
  • Differences in consumers’ tastes and preferences
  • Differences in infrastructure or conventional practices
  • Differences in distribution channels
  • Demands of host government (e.g.., local content regulations)
multi domestic strategy
Multi-domestic Strategy
  • Strategy and operating decisions are decentralized to strategic business units (SBU) in each country
  • Products and services are tailored to local markets
  • Business units in each country are independent of each other
  • Focus on competition in each market
  • Autonomy can create complex reporting lines
  • Prominent strategy among European firms due to broad variety of cultures and markets in Europe
global strategy
Global Strategy
  • Products are standardized across national markets
  • Decisions regarding business-level strategies are centralized in the home office
  • Strategic business units (SBU) are assumed to be interdependent
  • Often lacks responsiveness to local markets
  • Requires resource sharing and coordination across borders (which also makes it difficult to manage)
transnational strategy
Transnational Strategy
  • Seeks to achieve both global efficiency and local responsiveness
  • HQ takes strategic responsibility in some decision areas, subs dominate in others.
  • National subs provide HQ with more competitive intelligence and learn about world competitors from the experiences of other subs.
  • Subs fight retaliatory battles on behalf of a larger strategy and develop information systems, decision protocols, and performance measurement systems to weave global and local perspectives into tactical decisions.
transnational strategy cont d
Transnational Strategy (cont’d)
  • Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness
  • Must pursue organizational learning in both directions (HQ-->subs, subs-->HQ) to achieve competitive advantage
p g s vizir launch
P&G’s Vizir Launch
  • Company built on its “administrative heritage” of highly motivated, entrepreneurial subsidiary companies in each country, didn’t deny it
  • Worldwide learning capability is an important source of competitive advantage
    • ability to sense needs or opportunities for change
    • ability to develop effective responses
    • ability to implement change throughout the organization