Slide international business ch06

Steps in Developing International and  Global and international strategic alternatives  Approaches to world markets  Global Integrative strategies  Using e-business for global expans

Chapter 6 - Overview

 Reasons for going international

 Strategic formulation process

 Steps in developing international and global strategies

Prentice

Hall 2003

Strategic Planning and Strategy

 The process by which a firm’s managers evaluate the future prospects of the firm and decide on

appropriate strategies to achieve long-term

objectives is called strategic planning.

 The basic means by which the company

competes – its choice of business or businesses in which to operate and the ways in which it

differentiates itself from its competitors – is its

strategy.

Reasons for Going International

The Strategic Management Process

(Exhibit 6-1)

Define/clarify mission and objectives

Assess environment for threats, opportunities

Assess internal strengths and weaknesses

Consider alternative strategies using competitive analysis Choose strategy

Set up control and evaluation systems to ensure success, feedback to planning

Steps in Developing International and

 Global and international strategic alternatives

 Approaches to world markets

 Global Integrative strategies

 Using e-business for global expansion

 E-global or e-local

 Entry strategy alternatives

 Strategic choice

Major Variables Covered in Environmental

weaknesses (currently or potentially) compared

to competitors, so that the firm may use that

information to its strategic advantage

 It focuses on the company’s resources and

operations, and global synergies

Approaches to World Markets

 Globalization is a term that refers to the

establishment of worldwide operations and the development of standardized products and

marketing

 Regionalization (or multilocal) is where local

markets are linked together within a region,

allowing more local responsiveness and

specialization

Prentice

Hall 2003

Pressures to Globalize

 Increasing competitive clout resulting from

regional trading blocs

 Declining tariffs, which encourage trading across borders and open up new markets

 The information technology explosion, which

makes the coordination of far-flung operations easier and also increases the commonality of

consumer tastes

Prentice

Hall 2003

Using E-Business for Global Expansion

 “The real story is the profound impact this

medium will have on corporate strategy,

organization and business models Our research reveals that the Internet is driving global

marketplace transformation and paradigm shift in how companies get things done, how they

compete and how they serve their customers.”

www.IBM.com

Benefits of B2B

(Exhibit 6-6)

Better relationships with distributors/channels

Improved customer loyalty

Rapid entrance into new geographical markets

Better customer service

Lower operational costs

Expanded sales channel

Prentice

Hall 2003

Global B2B/B2C Strategy

To assess the potential competitive position of the

company, managers must ask themselves the following questions with respect to B2B/B2C:

• Does the exchange provide a technology solution that

helps industry-trading partners to do business more

efficiently?

• Is the exchange known to be among the top 3-5 within its

vertical industry?

• Does the exchange offer industry-specific technology and

expertise that gives it an advantage over generic

exchange-builders?

Conditions Favoring Going E-Global

“The global beachhead strategy makes sense

when trade is global in scope; when the business does not involve delivering orders; and when the business model can be hijacked relatively easily

by local competitors.”

M Sawhney and S Mandal

Prentice

Hall 2003

Conditions Favoring Going E-Local

“[The e-local/regional approach] is preferable under three conditions: when production and

consumption are regional rather than global in scope; when customer behavior and market

structures differ across regions but are relatively similar within a region; and when supply-chain management is very important to success.”

Sawhney and Mandal

Entry Strategy Alternatives

(In order of ascending risk)

 International joint ventures (IJVs)

 Fully owned subsidiaries

Prentice

Hall 2003

International Entry Strategies: Advantages

and Critical Success Factors

(Exhibit 6-7)

Strategy Advantages Critical Success Factors

Exporting Low risk Choice of distributor

No long-term assets Transportation costs Easy market access and exit Tariffs and quotas

Licensing No asset ownership risk Quality and trustworthiness

of licensee Fast market access Appropriability of intellectual

property Avoids regulations and tariffs Host-country royalty limits

Franchising Little investment or risk Quality control of franchisee

and franchise operations Fast market access

Small business expansion

International Entry Strategies: Advantages

and Critical Success Factors

(contd.)

Strategy Advantages Critical Success Factors

Contract Limited cost and risk Reliability and quality of

manufacturing local contractor

Short-term commitment Operational control and

human rights issues

Turnkey operations Revenue from skills and Reliable infrastructure

technology where FDI Sufficient local supplies and labor restricted Repatriable profits

Reliability of any govt partner Management Low-risk access to further Opportunity gain longer-term contracts strategies position

Prentice

Hall 2003

International Entry Strategies: Advantages

and Critical Success Factors

(contd.)

Strategy Advantages Critical Success Factors

Joint ventures Insider access to markets Strategic fit and complementarity

Share costs and risk of partner, markets, products Leverage partner’s skill base, Ability to protect technology technology, local contacts Competitive advantage

Ability to share control Cultural adaptability of partners

Wholly owned Realize all revenues and Ability to access and control

subsidiaries control economic, political and currency

Global economies of scale risk Strategic coordination Ability to get local acceptance Protect technology and Repatriability of profits

skill base Acquisition provides rapid entry into established market

Factors Affecting Choice of International

 Industry growth rate

 Technical intensity of industry

 Extent of scale and location economies

 Country risk

 Cultural distance

 Knowledge of local market

 Potential of local market

 Competition in local market

Factors Affecting Choice of International

 Costs of making or enforcing contracts with local partners

 Size of planned foreign venture

 Intent to conduct research and development with local

partners

1) a critical evaluation of the advantages (and

disadvantages of each in relation to the firm’s

capabilities,

2) the critical environmental factors, and

3) the contribution that each choice would make to the

overall mission and objectives of the company.

Alliance-based Entry Modes

Alliance-based entry modes are more suitable

under the following conditions:

• Physical, linguistic, and cultural distance between the

home and host countries is high

• The subsidiary would have low operational integration

with the rest of the multinational operations

• The risk of asymmetric learning by the partner is low

• The company is short of capital

• Government regulations require local equity participation