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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’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 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)

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 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.

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 business 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