Chapter 8 - Looking at International Strategies pptx

Chapter 8
Looking at International
Strategies
2
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 advantage
2
Use the CAGE framework to identify desirable
international arenas
3
Describe different vehicles for global expansion
4
Apply different international strategy configurations5
Outline the international strategy implications of the
static and dynamic perspectives
6
3
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
possibly be a global
player?
Strategic decisions
Vehicles
Staging Consumers
first, then
corporations
U.S.
Assemble
and distribute
itself
Corporations
first
China
Partner
4
INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
Economic
logic
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
5
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 not
understand local culture)

Governance and coordination
costs increase as you manage
from a distance
Why?
6
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
7
KEY FACTORS – LOCATION
Key factors

Global economies of scale

Location

•
Input costs
•
Competitors
•
Demand conditions
•
Regulatory environment
•
Presence of complements
Choosing the right location can
provide advantages in terms of
A five-forces analysis can help reveal
the attractiveness of a location


8
KEY FACTORS – MULTIPOINT COMPETITION
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



9
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
in the U.S.

Global economies of scale

Location

Multipoint competition

Learning and knowledge
sharing




10
THE CAGE DISTANCE FRAMEWORK
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 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 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 and
quality 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.
11

ADMINISTRATIVE DISTANCE
Legal
concerns for
US firms
Free Trade
Agreements
Free Trade
Agreements
•
FTA’s
•
Open foreign markets to US exports
Import Laws
Import Laws
•
Antidumping
Foreign Corrupt
Practices Act
Foreign Corrupt
Practices Act
•
Anti-bribery provisions
Intellectual
Property
Protection
Intellectual
Property
Protection
•
Patent Cooperation Treaty

•
USPTO
12
ADMINISTRATIVE DISTANCE
NAFTA
Historical
Political
Hostilities
Decreased distance
between US, Mexico, and
Canada
Increased distance between Cuba and US
13
ECONOMIC DISTANCE
“Bottom of the pyramid”
4 billion people
Deliberate Targeting
Ex: shampoo for
cold water
14
CHOICE OF ENTRY MODES
Choice of entry
mode
Nonequity
modes
Equity (FDI)
modes
Greenfield
investments
Minority JVsDirect exports

Licensing/
franchising
Acquisition50/50 JVsIndirect exports Turnkey projects
OthersMajority JVsOthers Contracted R&D
Wholly owned
subsidiaries
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
15
VEHICLES FOR ENTERING FOREIGN MARKETS
100% Exports 100% Local
Exports versus local production
Degree of
ownership
control over
activities 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-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
16
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)
Special
agreements
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)
17
ALLIANCES
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
18
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
19
IMPORTING
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
Customer
service
Country C
Logistics
20
INTERNATIONAL STRATEGY CONFIGURATIONS
Relatively few
opportunities to gain
global efficiencies

Many opportunities to
gain global efficiencies
Relatively high
local
responsiveness
Relative low
local
responsiveness
Multinational configuration
Build 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 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, 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)
21
BORN – GLOBAL FIRMS
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% of
global PC
mouse busi-
ness by
1989
Logitech
22
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

in the future?

Close worldwide coordination and com-
munication among business units,
suppliers, complements and customers
23
DEVELOPING A GLOBAL MIND-SET
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
Global perspective
Global skills
24
EXPATRIATES AND INPATRIATES
Expatriates
From the home
country
Inpatriates
From the local
or host country

25
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
Teams ?
Training ?
Transfers ?
??? ?
1
2
3
4