Welcome to class of International Strategy Formulation Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg CANADA http://abem.uwinnipeg.ca s.singh@uwinnipeg.ca

We need to balance the 3 Pressures to formulate a good international business strategy Industry-Specific Pressure Country-Specific Pressure Company-Specific Pressure 2

Industry-Specific Pressure (+)… Universal Customer Needs People see it, so want it  product or services Irrespective of country of origin! MNCs do not miss out opportunities eg watches, jeans, pizza, cell phone, computers… B2B (Industrial) Customers If GM goes international, so do suppliers Suppliers are expected to respond Close working relationship Otherwise suppliers miss out the opportunity 3

Industry-Specific Pressure (+) High Investment Intensity ↑ investment  recoup  time, $, R&D  standardize  USP eg MACH3 razor, Boeing,… Amortize development cost through rapid globalization Cost Reduction Need Minimum vol. needed for certain unit cost Economies of scale (30% domestic + 70% international) However, in newspaper industry, local content and responsiveness is more important than economies of scale or production efficiency 4

Country-Specific Pressure (±)… Trade Barrier (Tariff Barrier) Because governments want Investments (FDI)  jobs, technology, ↑QOL MNCs to establish autonomous operations Preserve culture, sovereignty, foreign exchange In sum, compete through FDI rather than trade If a country becomes a trading block Its competitiveness becomes vital  loss of tariff So governments begin subsidizing local industry Thus governments may resort to nontariff barrier eg EU, steel; US Sugar…, Production eg Different industry standards: DVD-RAM (Toshiba, DVD-RW (Sharp), DVD+RW (Sony) 5

Country-Specific Pressure (±)… Cultural Differences Nationalism may deter globalization Preserve culture and sovereignty Tradition and religious beliefs run deep eg McDonald in India  No beef eg Kelloggs in UAE  tested for pork derivatives eg Wrigley’s chewing gum  tested and found ok Local taste eg KFC vs. tandoori chicken in India McDonalds versus Burger King in Jamaica Income Disparity People cannot afford Imitation and Piracy Microsoft, AutoCAD, SAP software…. 6

Country-Specific Pressure (±) Anti-Globalization Activities It is not globalization. if so, it is very limited High awareness of issues  Mecca Cola Website and fundraising capabilities Powerful social networking  uprising So MNCs beef up public relations eg Coca-Cola in Africa Internet – May be, No need to go abroad Competitive advantage vs. core competencies Cost of maintaining physical structure can be ↑ overseas 7

Ten % of profit goes to Humanity/charity causes 8

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In fact, It was Turkey's Halal Chicken but led to temporary closure BBC Nov 2015 In fact, It was Turkey's Halal Chicken but led to temporary closure 11

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Company-Specific Pressure (±)… Organizational Resistance to Change Justification for globalization Country managers lose control/autonomy HO is overestimating the impact of globalization Eg GM, Philips, IBM, Nestle  all have country managers Union can resist too International Professionals in Short Supply Not many cross-culturally competent managers Personal reason, so no to globalization Do not wish to travel In some countries, need to take vaccinations and medicines eg Malaria, Yellow Fever, Hepatitis A/B, meningitis… Do not wish to be away from families Region (security) or religion – do not feel safe 14

Company-Specific Pressure (±) Transportation Difficulty ↓ value-to-weight is not suitable globalization eg Dairy, bread product – short shelf-lives eg Seafood, flowers  packaging, refrigeration Costs may outweigh benefits of globalization New Production Technique JIT  within hours of assemble, ↓ holding cost Flexible manufacturing system Low set up time, Multiple Line of Business (LOB) in single factory Customization is efficient Integration: Vertical versus Horizontal 15

Vertical vs. Horizontal Integration… 16

Vertical vs. Horizontal Integration 17

Mapping Industry for Strategy Formulation Globalization  Our goal is to move up; ie ↑ integration quadrant Cement: globalization limited by low value to weight ratio Globalization and Localization vary from industry to industry 18

Three International Strategies… Multi-Domestic HO develops product  affiliates replicate  Country Managers Very popular after WWII  High tariff After 80s ↓ Trade barriers  Globalization Regional Maximize economies of scale at regional level Homogenous market demand, trading blocks Stepping stone to full blown global strategy Local staffing, ↓ turnover, ↑ morale, regional decision-making eg GM, Safeway 19

Three International Strategies Global Maximize international efficiency Locate activities in low cost countries Standardize product, and manufacture world-class products MNCs have bargaining power Reconfigure value-adding activities between countries MNCs can move operations elsewhere So governments want to retain MNCs Tax break and infra structure support ↑ investment, ↑ incentive offered 20

Questions?