8-1 international business: opportunities and challenges in a flattening world, 1e by mason...

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International Business: Opportunities and Challenges in a Flattening World, 1e

By Mason Carpenter and Sanjyot P. Dunung

© Sanjyot Dunung 2011, published by Flat World Knowledge

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Chapter 8International Expansion and Global

Market Opportunity Assessment


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Learning Objectives

• Learn about the rationale and motivations for international expansion

• Understand the importance of international due diligence

• Recognize the role of regional differences, consumer preferences, and industry dynamics

• Know the components of PESTEL analysis

• Recognize how PESTEL is related to the dimensions of globalization

• Understand why importing might be a stealth form of international entry© Sanjyot Dunung 2011, published by Flat World Knowledge

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Learning Objectives

• Describe the five common international-expansion entry modes

• Know the advantages and disadvantages of each entry mode

• Understand the dynamics among the choice of different entry modes


8-6© Sanjyot Dunung 2011, published by Flat World Knowledge

Rationale for International Expansion

• To improve the cost-effectiveness of their operations

• To expand into new markets for new customers

• To follow global customers


Planning for International Expansion

• It is important for firms to prioritize which countries to enter first and to evaluate each country’s relative merits because:

– Many markets look appealing due to their market size or low-cost production


International Market Due Diligence

• Involves analyzing foreign markets for their potential size, accessibility, cost of operations, and buyer needs and practices to aid the company in deciding whether to invest in entering that market

• Includes:

– Regional differences

– Understanding local consumers

– How to learn the needs of a new foreign market

– Differentiation and capability

– Industry dynamics 8-9© Sanjyot Dunung 2011, published by Flat World Knowledge

Know the Components of PESTEL Analysis

• PESTEL analysis

– An important and widely used tool that helps present the big picture of a firm’s external environment in political, economic, sociocultural, technological, environmental, and legal contexts, particularly as related to foreign markets; analyzes for market growth or decline and the position, potential, and direction for a business

• Three steps in the PESTEL analysis

– Consider the relevance of each of the PESTEL factors to your context

– Identify and categorize the information that applies to these factors

– Analyze the data and draw conclusions


Factors Favoring Industry Globalization

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• Markets

– Homogeneous customer needs

– Global customer needs

– Global channels

– Transferable marketing approaches

• Costs

– Large-scale and large-scope economies

– Learning and experience

– Sourcing efficiencies© Sanjyot Dunung 2011, published by Flat World Knowledge


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– Favorable logistics

– Arbitrage opportunities

– High research-and-development (R&D) costs

• Governments

– Favorable trade policies

– Common technological standards

– Common manufacturing and marketing regulations



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• Competition

– Interdependent countries

– Global competitors


Importing as a Stealth Form of Internationalization

• Importing: The sale of products or services in one country that are sourced in another country

• Firms that engage in importing must learn about:

– Customs requirements

– Informed compliance with customs regulations

– Entry of goods

– Invoices

– Classification and value

– Determination and assessment of duty8-14© Sanjyot Dunung 2011, published by Flat World Knowledge


– Special requirements

– Fraud

– Marketing

– Trade finance and insurance

– Foreign trade zones



• Outsourcing: Contracting with a third party to do some of a company’s work on its behalf

• Offshoring: Taking some business function out of the company’s country of origin to be performed in another country, generally at a lower cost

• International outsourcing: The term for both outsourcing and offshoring work, or outsourcing to a nondomestic third party


Table 8.1 - International-Expansion Entry Modes


Common International-Expansion Entry Modes

• Strategic alliance: An international entry mode involving a contractual agreement between two or more enterprises stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose

• Greenfield venture: An international entry mode involving the establishment of a new, wholly owned subsidiary


Common International-Expansion Entry Modes

• Licensing: An international entry mode involving the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, or technology, under defined conditions

• Acquisition: An international entry mode in which a firm gains control of another firm by purchasing its stock, exchanging stock, or, in the case of a private firm, paying the owners a purchase price


Cage Analysis

• CAGE framework: The analytical framework used to understand country and regional differences along the distance dimensions of culture, administration, geography, and economics


Table 8.2 - The CAGE Framework


CAGE Analysis and Institutional Voids

• Institutional voids: The absence of key specialized intermediaries found in the markets of finance, managerial talent, and products, which otherwise reduce transaction costs


Table 8.3 - Specialized Intermediaries within a Country or Other Geographic Arena


Strategies for Handling Institutional Voids

• Adapt its business model

• Change the institutional context

• Stay away


The History and Role of Scenario Planning and Analysis

• SWOT (strengths, weaknesses, opportunities, threats): A strategic management tool that helps an organization take stock of its internal characteristics (strengths and weaknesses) to formulate an action plan that builds on what it does well while overcoming or working around weaknesses and assess external environmental conditions (opportunities and threats) that favor or threaten the organization’s strategy


The History and Role of Scenario Planning and Analysis

• Scenario planning: A process of analyzing possible future events by considering alternative possible outcomes (scenarios)

• Steps:

– Choose the target issue, scope and time frame that the scenario will explore

– Brainstorm a set of key drivers and decision factors that influence the scenario

– Define the two dimensions of greatest uncertainty

– Detail the four quadrants of the scenarios with stories

– Identify indicators that could signal which scenario is unfolding

– Assess the strategic implications of each scenario


Trends and Uncertainties

Trends

• In the context of scenario planning, forces for change whose direction, and sometimes timing, can be predicted

Uncertainties

• In the context of scenario planning, forces for change whose direction, and sometimes timing, can be predicted


8-1 international business: opportunities and challenges in a flattening world, 1e by mason...

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