chapter 8 looking at international strategies
DESCRIPTION
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. - PowerPoint PPT PresentationTRANSCRIPT
OBJECTIVES
2
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 advantage
2
Describe different vehicles for international expansion
3
Apply different international strategy configurations4
Outline the international strategy implications of the static and dynamic perspectives
5
DELL GOES TO CHINA
3
Dell becameChina’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 possibly be a global player?
Strategic decisions
Vehicles
Staging Consumersfirst, then corporations
U.S.
Assemble and distributeitself
Corporationsfirst
China
Partner
INTERNATIONAL PRESENCE OF SELECTED MULTINATIONAL CORPORATIONS (MNCs)
4
1
32
52
59
65
96
37,031
29,378
1,540
8,279
2,165
917
Cell phones
Automobiles
Audioequipment
Computers,electronics
Online auctions
Pizza
Finland
Germany
Japan
U.S.
U.S.
U.S.
Nokia
Audi
Clarion
Apple
eBay
Papa John’s
Sales in domestic
market Percent
Total sales$ Millions Products
DomesticmarketCompany
Sales in
foreign markets
Percent99
68
48
41
35
4
INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
5
Economiclogic
Arenas
VehiclesStaging
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
6
• 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 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
Why?
KEY FACTORS – GLOBAL ECONOMIES OF SCALE
7
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
KEY FACTORS – LOCATION
8
Key factors
Global economies of scale
Location • Input costs
• Competitors
• Demand conditions
• Regulatory environment
• Presence of complements
Choosing the right location canprovide advantages in terms of
A five-forces analysis can help revealthe attractiveness of a location
KEY FACTORS – MULTIPOINT COMPETITION
9
Key factors
Global economies of scale
Location
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 – LEARNING AND KNOWLEDGE SHARING
10
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 in the U.S.
Global economies of scale
Location
Multipoint competition
Learning and knowledge sharing
THE CAGE DISTANCE FRAMEWORK
11
Attributes creating distance
Industries or products affected by distance
Cultural distance Administrative distance Geography distance Economic distance
Different languages
Different ethnicities; lack of connective ethnic or social networks
Different religions
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), standards (electrical appliances), or packaging
Products carry country-specific quality associations (wines)
Absence of colonial ties
Absence of shared monetary or political association
Political hostility
Government policies
Institutional weakness
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)
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 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)
Differences in consumer incomes
Differences in costs andquality of
• Natural resources• Financial resources• Human resources• Infrastructure• Intermediate inputs• Information or knowledge
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 )
Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.
CHOICE OF ENTRY MODES
12
Choice of entry mode
Nonequity modes
Equity (FDI) modes
Greenfieldinvestments
Minority JVsDirect exportsLicensing/franchising
Acquisition50/50 JVsIndirect exports Turnkey projects
OthersMajority JVsOthers Contracted R&D
Wholly ownedsubsidiaries
Alliances and joint ventures (JVs)
Exports Contractual agreements
Comarketing Strategic alliances (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
VEHICLES FOR ENTERING FOREIGN MARKETS
13
100% Exports 100% Local
Exports versus local production
Degree of ownership control overactivities per-formed in the foreign market
0%
100%
FDI
Exports
Alliance
Champion International’s paper exports through independent brokers
Honda’s initial entry into the U.S. market
FDI through acquisition
Bridgestone’s acquisition of U.S.-based Firestone
Ford-MazdaGenentech-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,” businessHorizons, March/April 2002, 45-54
EXPORTING OPTIONS
14
ShippingMost common option in relatively close markets and for productswith 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)
Specialagreements
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)
ALLIANCES
15
U.S. firm
Until recently, China did not allow non-Chinese companies in China …
… so U.S. companies formed alliances to gain access
Chinese Firm
FOREIGN DIRECT INVESTMENT
16
• 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
Foreigncompany
Localcompany
Home country/market
Acquires
IMPORTING
17
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
“Domestic”company
Home country
Country A
Production
Country B
Customerservice
Country C
Logistics
HOW WOULD YOU DO THAT? – LAURA ASHLEY
18
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
1. Complementary needs and competencies
2. Similar management styles and operating systems
3. Divergent strategic objectives
• Why were each of these three conditions important?
• Who did Maxmin choose as a partner?
INTERNATIONAL STRATEGY CONFIGURATIONS
19
Relatively few opportunities to gainglobal efficiencies
Many opportunities togain global efficiencies
Relatively highlocalresponsiveness
Relative lowlocalresponsiveness
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.
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
20
More and more firms, even young, small ones, have operations that bridge national borders
Founded by
• 2 Italians
• 1 Swiss
R&D
• California
• Switzerland
Production
• Ireland
• Taiwan
30% ofglobal PC
mouse business by
1989
Logitech
HOW TO SUCCEED AS A GLOBAL START-UP
21
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
22
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 mindset
Glo
bal
per
spec
tive
Glo
bal
ski
lls
HOW WOULD YOU DO THAT?
23
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
Teams ?
Training ?
Transfers ?
??? ?
1
2
3
4
SUMMARY
24
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 advantage
2
Describe different vehicles for international expansion
3
Apply different international strategy configurations4
Outline the international strategy implications of the static and dynamic perspectives
5