International Business Management by Dr Michael C McDermott

1. International Business Management by Dr Michael C McDermott

2. What Is International Business? • Trans-border transactions • international trade • international investment

3. Participants in International Business • SMEs - • Export Marketing • MNEs - • IBM • Managing the Multinational Subsidiary • Global Marketing

4. Actors in IB • Home country governments • Host country governments • Employees’ representatives and Trades Unions • International bodies (WTO, IMF etc) • Lobby groups

5. The Focus • upon multinational enterprises (MNEs) • strategy implementation (key decision-making areas and functions of MNEs) • strategy evaluation

6. Definition of MNEs “A corporation which owns(in whole or in part), controlsand manages income-generating assets in more than one country”

7. Essential features • direct investment • collective transfer of resources • income-generating assets

8. More demanding definitions ... • must have direct investments in at least six countries • look closely at the ratio of foreign assets etc in total operations • This last definition tends to highlight the paucity of truly global firms

9. MNEs Traditional Characteristics • Based in western, developed economies • Engaged in manufacturing • Bulk of investments in other developed economies

10. Non-conventional MNEs were... • State-owned • ‘Third World’ MNEs • Engaged in services

11. Today MNEs are... • far from homogenous • big and small • from many different countries • engaged in wide range of activities

13. Challenges • What are the strategic priorities of today and tomorrow? • How can customer needs be best met? Effectiveness • Where can this be done to ensure cost competitiveness? Efficiency?

14. The MNCs’ Ideal World • no trade barriers • competition to attract investment • no strings attached • come as you go

15. In an Ideal World • select optimum plant locations • achieve world class productivity levels • world class quality build • excellent sources of supply

16. In an Ideal World • identify and integrate acquisitions • successful alliances and joint ventures • corporate harmony and control • no need for costly divestments

17. In an Ideal World IV • abundant pool of low cost quality labour • skilled labour • weak unions and lack of industrial action • cadre of suitable international managers • no need for massive expatriate bills

18. In an Ideal World V • highly productive R&D • unique advantage that delivers enduring competitive advantage • currency stability and low inflation • single currency in regional markets

19. The Harsh Reality I • numerous trade barriers • sceptical and tough host governments • onerous disincentives • penalties for divesting

20. The Harsh Reality II • plant location decisions often flawed and irrational • beset by poor productivity levels • sub-standard quality build - high wastage • struggling to upgrade existing low-quality sources of supply

21. The Harsh Reality III • ill-conceived acquisitions or ones wrecked by clashes between buyer & target • disastrous alliances and unhappy joint ventures • corporate conflict and suspicion • costly divestments - job losses

22. The Harsh Reality IV • labour shortages and often expensive • skills shortages • strong unions and frequent industrial action • parochial managers struggling to stay afloat • reliance on expensive expatriates who often under-perform

23. The Harsh Reality V • R&D fails to deliver • imitators and lack of legal protection • currency instability and high inflation • maintenance of national currencies in regional markets

24. The Strategic Imperatives • World Class Marketing • World Class Manufacturing • Invariably requires geographical dispersion of activities to exploit location-specific advantages

25. The Corporate Sucess Formula E = mc2 Excellence = mastery of Competition and change

26. Porter’s four types of IB Strategy • Cell 1:export-based, decentralised marketing • Cell 2: country responsive • Cell 3: high foreign investment, extensive co-ordination • Cell 4: pure global strategy

27. Types of International Business Strategy • You will look at a number of typologies in Global Marketing • focus on the local vs global dilemma • Here the focus is on Porter • Also look closely at Hamel and Prahalad

28. Configuration Dispersed Concentrated High Cell 3 Cell 4 Co-ordination Cell 2 Cell 1 Low

29. Configuration Dispersed Concentrated High BMW Co-ordination Hyundai Low

30. Configuration Dispersed Concentrated High Toyota Co-ordination Low

31. Impact of Strategy/Cell • Cells 1,2, and 4 are relatively uncomplicated • Cell 3 is much more problematic

32. Points to Consider • Within the same industry, major and successful players follow different types of IB strategy • MNCs from the same home country may pursue different types of IB strategy

33. Trends in various Industries • Retailing? • Electronics? • Telecoms? • Autos?

34. Porter’s Four Strategies: Some Comments • are they related to generic strategy? • are they related to macro considerations • are they determined purely by economic factors? • are they sustainable?

35. Export-based Strategy • in 1985, Japan’s giants were still referred to as ‘the reluctant multinationals’ • post-1985 - surge in Japanese outward fdi • What caused such a dramatic change? • Let’s look at the Japanese model

36. Export-based Strategy • Strategy of Japanese players? • low-cost to win market share (sales maximisation) • achieved initially through international subcontracting - finished goods and components

37. Export-based Strategy • Rivals of Japanese MNEs failed to recognise the strategic intent and the competitive threat posed • They became dependent upon Japanese firms • They then sought to restrict Japanese expansion

38. Export-based Strategy • They erected barriers to entry for Japanese exports • Thus early Japanese investments were defensive and reactive to changes in the international environment • ‘Endaka’ in mid 1980s led to a different perspective - offensive and proactive

39. Export-based Strategy • The strong Yen rendered exporting increasingly non-competitive • It also rendered foreign assets very cheap • Resulting in larger greenfield investments but also the first large international acquisitions

40. Export-based Strategy • This example illustrates some key aspects of this strategy • it’s very much related to a particular generic strategy (low cost) • it requires receptive export markets • its viability is strongly influenced by macro considerations

41. Export-based Strategy • as an economy becomes more developed this strategy becomes less attractive • More recently, Korea appeared to be at a similar stage to Japan in 1985 • Its economic crisis has acted as a ‘time-machine’ - prolonging the viability of this strategy

42. Mainland China • Haier • Legend • Cheung Long • Konka brand - HK airport, June 1999

43. Export Based Country C Country D Country B Country A

44. Country-centred Strategy • Earliest US investments in Europe had at least a regional perspective (ie 1870-1914) • 1930s - severe depression resulted in national protectionism • This set the pattern of local production for local markets

45. Country-centred Country C Country D Country B Country A

46. Country-centred Strategy • Results in low economies of scale • Plants likely to have wide product range to meet all local needs • A large number of small plants • Substantial product adaptation

47. Country-centred Strategy MNE may have incentive to abandon this approach • it wants high economies of scale • it wants plant specialisation • it wants product standardisation But what does the market want

48. Country-centred Strategy • Political change creating free trade within a region discourages this strategy • Consider ASEAN • Or China

49. Country-centred Strategy • In BEMs, MNEs may wish to/have to adopt this approach • Ironically, the host country government wants the opposite • It wants the plants to be integrated into a global system in order to boost exports

50. Country-centred .... • Plant location decision is straight-forward • Deciding upon role of the plant is easy - make what you wish to sell - a miniature replica of the MNE