Motivations for International Expansion

1. 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 -

2. 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

3. 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

4. Retaliation against a global competitor

5. The Search for Growth

6. What kind of business model effectively serves the needs of consumers? • understand the market pyramid to avoid becoming a small, high-end niche player

7. 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

8. 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?

9. 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”

10. International Entry Strategies • Exporting • Licensing • Strategic Alliances • Acquisitions • Wholly-owned subsidiary

11. 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

12. 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.

13. 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

14. 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

15. 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

16. 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)

17. 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

18. 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)

19. 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.

20. 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

21. 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