international business strategic management market entry modes choice

International Business Strategic Management

Faisal Shahzad

MBA (Marketing)

MSc in Economics and Business Administration

VAASA University Finland

Practice Lecturer

Helsinki Business College

Helsinki, Finland.

00358 440778692

email: [email protected]/[email protected]

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mailto:[email protected]

Learning Outcomes


Learning Outcomes

What is International Business?

Why we study IB?

What is Strategy?

Drivers of Internationalisation

Geographic Sources of Advantage

Location Advantage: Porter’s Diamond

PESTEL Anaylsis

CAGE Framework

How many Strategic Alternatives available for MNCs?

Market Entry Modes and selection


Why Study International Business?


Why Study International Business?

In today’s globalizing world, firms are increasing looking towards other region of the world to trade in.

What are the steps taken by the exectuives of these firms before deciding on which market to enter?

How do they make sure their journey a successful one?

Organization which you will join might have international operations.

If one day you start your own business and may you will have to buy material foreign-made.


What is Strategy?


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“A plan of action or policy designed to achieve a major or overall aim.”

The essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match.

What is Strategy?

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International vs. Global Strategy

International strategy refers to a range of options for operating outside an organization’s country of origin.

Global strategy is only one kind of international strategy, it involves high coordination of extensive activities dispersed geographically in many countries around the world.


International Strategy Framework

Internationalization

Drivers

Geographic

Advantages

Market Selection

Mode of

Entry

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Drivers of Internationalization

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Market Drivers Similar customer needs

Global customers

Transferable marketing

Cost Drivers Scale economies

Country-specific differences

Favorable logistics

Government drivers Trade policies

Technical standards

Host government policies

Competitive drivers Interdependence between countries

Competitors global strategies

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Geographic Source of Advantage

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Firm strategy,

structure and rivalry

Demand conditions

Related and supporting industries

Factor conditions

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Government

Chance

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Location Advantage: Porter's Diamond

Demand Conditions

1) The nature of the domestic customers can become a source of competitive advantage.

2) Dealing with sophisticated and demanding customers at home helps train a company to be effective in foreign markets.

These refer to the “factors of production” that go into making a product or service (raw material,


Italian ceramic industry after World War second, There was post war housing boom. Consumers wanted cool floors due to hot climate conditions.

Japanese knowledgeable consumers of electric and electronics products made that industry innovative and grow tremendously.

French wine industry, French people are sophisticated wine consumers which forced firms to produce high quality wine.

Sophisticated local customers in France and Italy have helped keep their local fashion industries at the leading edge for many decades.


Diamond Conditions Example

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Factor Conditions

These refer to the “factors of production” that go into making a product or service (raw material, labor an land). There are two types of factors.

Basic Factors: Natural resources, climate, demographics

Advanced Factors: Communication infrastructure, skilled labor, research and development facility etc.


Related and supporting industries

•Local “clusters” of related and mutually supporting industries can be an

important source of competitive advantage.

•These are often regionally based and making personal interaction easier.

For example: Leather footwear industry, leatherworking machinery

industry and the design services which connect them together in the same

regional cluster to each others mutual benefit.


Firm strategy, structure and rivalry

The characteristics strategies, industry structures and rivalries in different countries can also be bases of advantage.

German companies strategy of investing in technical excellence gives them a characteristics advantage in engineering industries and creates large pool of expertise.

A competitive local industry structure is also helpful, like swis pharmaceuticals industry became strong in part because each company had to compete with several strong local rivals.


Government and Chance


International Strategies


Global Strategy

The firm views the world as a single marketplace and its primary goal is to create standardized goods and services that will address the needs of customers worldwide.

I.Strategies form at HQ

II.Economies of Scale and Scope

III.Global Advertising and Marketing Campaigns

The firm views the world as a single marketplace and its primary goal is to create standardized goods and services that will address the needs of customers worldwide.

Strategies form at HQ

Economies of Scale and Scope

Global Advertising and Marketing Campaigns


Home Replication Strategy

In this approach, a firm utilize the core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign markets that it centers.

Example: Mercedes-Benz relies on its well-known brand name and its reputation for building well engineered, luxurious cars capable of traveling safely at very high speeds.


Multidomestic Strategy

A multi-domestic corporations vies itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market. In addition, each of these subsidiaries is free to customize its products, its marketing campaign, and its operations techniques to best meet the needs of its local differences among national market.


Transnational Strategy

The transnational corporations attempt to combine the benefits of global scale efficiencies, such as those pursued by a global corporations, with the benefits and advantage of local responsiveness, which is the goal of multi domestic corporations.

Example: IKEA


The Staged International Expansion Model

The Staged International Expansion model proposes a sequential process

whereby companies gradually increase their commitment to newly entered

markets, as they build market knowledge and capabilities.

However, the gradualism of staged international expansion model is now

challenged by two phenomena:

1. Born global firms

2. Emerging country multinationals


Market Selection and Entry


PESTEL Framework

Political

Economic

Social

Legal


Cultural

Distance

Administrative

Distance

Geographical

Distance Economic


CAGE Framework

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Market Entry Modes

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Choosing a Mode of Entry

Decision Factors Ownership Advantage

Location Advantage

Internalization Advantage

Other Factors

exporting Internatioanl

licensing

International

frenchising Specialized modes

Foreign direct

investment

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Market Entry Modes


Export

Exporting offers several advantages and disadvantages to the firms.

Eporting is the process of sending goods or services from

one country to other countries for use or sale there.


Increase sales and profits

Gain global market share

Eploit corporate technology and know-how

Extend the sales potential of existing products

Stabilize seasonal market fluctuations

Enhance potential for corporate expansion

Gain information about foreign market competition

Incur added administrative cost

Modify your product or packaging

Allocate personal for travel

Payments delay

Vulnerability to tariffs and NTBs

Potential conflicts with distributors

Export Advantages Disadvantages


Modes of Entry Licensing

Generally, a licensing agreement involves the granting of rights to intangible property, such as patents, copyrights, trademarks, or producers. An agreement is made between the owner (licensor) of the property and a user of (licensee) to specify the terms of use and payment terms.


1) Specifying the agreement boundaries

(Heineken is exclusively licensed to manufacturer and sell Pepsi-Cola in the Netherlands).

2) Determining Compensation

(royalty is usually paid to the licensor in the form of flat fee, percentage of the unit sold).


Basic Issues in Licensing

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Basic Issues in Licensing

3) Establishing rights, privileges and constraints

(if a licensee began using inferior material, if licensee sell information, technology, production method to other firm).

4) Specifying the agreement duration

(the licensee built Walt Disney land insisted on a 100-year licensing agreement with the Walt Disney Company).


Licensing Advantages Disadvantages


Franchising

A fenchising agreement allows an independent entrepreneur or organization called the franchisee, to operate a business under the name of another, called the franchisor, in return for a fee.


Franchising


Foreign Direct Investment


Foreign Direct Investment


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Dunning’s Eclectic Theory


The Greenfield Strategy

The Greenfield strategy involves starting a new operation from scratch. The firm buy or lease land, constructs new facilities, hires and transfers in managers and employees, and then launches the new operations. Example: Toyota production facility in India represents greenfield investment, Nissan factory in Sunderland England.


The Greenfield Strategy Advantages


The Greenfield Strategy Disadvantages


The Acquisition strategy


Joint Ventures


Joint Ventures

Advantages

I. JV provides a means to spread large capital needs over a number of parties.

II.Partners can bring specific skills and know-how to the partnership.

III.Succesful joint ventures synergy.

Disadvantges

Think


Scope of Strategic Alliances


• Production Alliances: is a functional alliance in which two or more firms each manufacture products or provide services in shared or common facility.

Example NUMMI joint venture between Toyota and GM is housed in a former GM assembly plant in California, which company had shut down.

• Marketing Alliances: is a functional alliance in which two or more firms share marketing services or expertise. In most cases. One partner introduces its products or services into a market in which the other partner already has a presence.

Example: U.S toymaker Mattel and its Japanese rival Bandai established a strategic marketing alliance in 1999. Bandai agreed to distribute Mattel products like Barbie dolls, Hot wheels toys in Japan while Mattel agreed to market Bandai’s Power Rangers and Digimon in Latin America.



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Financial Alliances: is a functional alliance of firms that want to reduce the financial risk associated with a project. May be one partner contribute the bulk of the financing while the other partner or partners provide special expertise or makes other kinds of contribution partially offset its lack of financial investment.

Example: The strategic alliance between Boeing and its three Japanese partners was created primarily for financial purposes.

Research and Development Alliances: In this alliance partners agree to undertake joint research to develop new products or services.

Example: Alliance among Intel, Micron Technology, Samsung, Hyundai, NEC, and Siemens to develop the next generation of DRAM chips.



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Selection of Partners


Pitfalls of Strategic Alliances


Any Questions


international business strategic management market entry modes choice

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