Chapter 8 - Looking at International Strategies pptx

OBJECTIVES Define international strategy and identify its implications for the strategy diamond 1 Understand why a firm would want to expand internationally and explain the relationship

Chapter 8

Looking at International Strategies

OBJECTIVES

Define international strategy and identify its implications for the strategy diamond

1

Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage2

Use the CAGE framework to identify desirable international arenas

3Describe different vehicles for global expansion4

Apply different international strategy configurations5

Outline the international strategy implications of the static and dynamic perspectives

6

DELL GOES TO CHINA

Dell became China’s largest computer system provider in just

5 years

If we’ve not in what

will soon be the

second-biggest PC

market in the world,

then how can Dell

U.S.

Assemble and distribute itself

Corporations first

China

Partner

INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND

Economic logic

Arenas

Vehicles Staging

Differentiators

Arenas

• Which geographic areas will we enter?

• Which channels will we use in those areas?

• Which international market-entry strategies will

we use? Alliances?

Acquisitions? Greenfield investments?

Vehicles

• How does being international make our products more attractive to our customers?

Differentiators

• How does our international

strategy lower our costs, raise the

prices we can charge, or create

synergies between our business?

Economic logic

• When will we go international?

• How quickly will we expand into

international markets?

• In what sequence will we

implement our entry tactics?

Staging

PROS VS CONS OF INTERNATIONAL EXPANSION

• 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

Many international expansions fail

 Newness can be a disadvantage

(e.g., your firm must move

up 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

Why?

KEY FACTORS – GLOBAL ECONOMIES OF SCALE

Key factors

 Global economies of scale

• 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

Global expansion may be attractive if it allows you to leverage fixed assets over new markets

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 – LEARNING AND KNOWLEDGE SHARING

Key factors 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

THE CAGE DISTANCE FRAMEWORK

Attributes creating distance

Industries or products affected by distance

Different social norms

Products have high

linguistic content (TV)

Products affect cultural or

national identity of

consumers (foods)

Product features vary in

terms of size (cars),

Government involvement is high

in 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)

Physical remoteness Lack of a common border Lack of sea or river access Size of country

Weak transportation

or communication links Differences in climates

Products have a low weight or bulk ratio (cement) Products are fragile or perishable (glass, fruit) Communications and connectivity are important (financial services)

value-of-Local supervision and operational requirements are high (many services)

Differences in consumer incomes

Differences in costs and quality of

Distribution or business systems are different (insurance)

Companies need to be responsive and agile (home appliances )

Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.

Free Trade Agreements

Foreign Corrupt Practices Act

• Anti-bribery provisions

Intellectual Property Protection

Intellectual Property Protection

• Patent Cooperation Treaty

• USPTO

ADMINISTRATIVE DISTANCE

NAFTA

Historical Political Hostilities

Decreased distance between US, Mexico, and Canada

Increased distance between Cuba and US

CHOICE OF ENTRY MODES

Choice of entry mode

Nonequity modes

Equity (FDI) modes

Greenfield investments Minority JVs

franchising

Acquisition 50/50 JVs

Others Majority JVs

Wholly owned subsidiaries

Alliances and joint ventures (JVs)

agreements

(within dotted areas)

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

Honda’s initial entry into the U.S market

FDI through acquisition

Bridgestone’s acquisition of U.S.-based Firestone

Ford-Mazda Genentech-Hoffman LaRoche

Alliance and exports

KFC’s franchisees

in India

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

Shipping Most common option in relatively close markets and for products

with lower shipping costs

Licensing and

franchising

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)

FOREIGN DIRECT INVESTMENT

• 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

Foreign company

Local company

Home country/

market

Acquires

Country C

Logistics

INTERNATIONAL STRATEGY CONFIGURATIONS

Relatively few opportunities to gain global efficiencies

Many opportunities to gain global efficiencies Relatively high

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 configuration

Develop 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.

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 configuration

Build cost advantages through centralized, scale operations Requires centralized and globally scaled resources and capabilities

global-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

More and more firms, even young, small ones, have operations

that bridge national borders

1989 Logitech

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 a

global start-up

• Do you need human resources from

other countries to succeed?  Strong management team with

inter-national experience

• Do you need financial capital from

other countries to succeed?  Broad and deep international network

among 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

managing diverse teams in a world- wide work force

or host country

HOW WOULD YOU DO THAT?

Fewer than 15%

of executives have substantive international experience

If you were CEO, how would you build a global perspective in your executives?

Tactic Action steps