Welcome to class of International Strategy Formulation by Dr. Satyendra Singh

The Process Balancing pressures –General pressure Free trade areas, global financial market, advances in communications technology… –Industry-specific  Encourage to globalize –Country-specific –Company-specific International strategy formulation –Mapping of Industries –Mutidomestic, Regional, and Global strategies –Recommendations for managing the process Encourage or discourage

Industry-specific Pressure (+)… Universal customer needs –People see it, so want it  product or services –Irrespective of country of origin! –Even sports –MNCs do not miss out opportunities Ex. 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

Industry-specific Pressure (+) High investment intensity –↑ investment  recoup  time, $, R&D  standardize  develop universal appeal Ex. 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% intl.) Ex. Petroleum industry  ↑ production for ↓ price However, newspaper industry, local content and responsiveness is more important than prod. efficiency

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 thru FDI rather than trade –If a country becomes a trading block Its competitiveness becomes vital  loss of tariff So governments begin subsidizing local industry –I.e.,Government resorts to nontariff barrier Ex. EU, steel; US Sugar…, Production Ex. Different industry standards: DVD-RAM (Toshiba, DVD-RW (Sharp), DVD+RW (Sony)

Country-specific Pressure (±)… Cultural differences –Nationalism may deter globalization Preserve culture and sovereignty –Tradition and religious beliefs run deep Ex. McDonald in India  No beef Ex. Kelloggs in UAE  tested for pork derivatives Ex. Wrigley’s chewing gum  tested and found ok –Local taste Ex. KFC vs. tandoori chicken in India Income disparity People cannot afford –Imitation and Piracy –Microsoft, AutoCAD, SAP software….

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 Ex. Coca-Cola in Africa Internet – may be no need to go abroad –Strategy shift  Intuit income tax software –Competitive advantage vs. core competencies –Cost of maintaining physical structure can be ↑

As per the religion, 10% of profit goes to charity causes

Company-specific Pressure (±)… Organizational resistance to change –Justification for globalization (from multidomestic) –CM lose control/autonomy HO is overestimating the impact of globalization Ex. GM, Philips, IBM, Nestle  all have CM – Union can resist too Management short supply –Not many cross-culturally competent managers –Personal reason, so no to globalization Do not wish to travel Do not wish to be away from families Region or religion – do not feel safe

Company-specific Pressure (±) Transportation difficulty –↓ value-to-weight is not suitable globalization Ex. Dairy, bread product – short shelf-lives Ex. 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 LOB in single factory –Customization is efficient Ex. Custom Levi jeans at $10 premium Integration: Vertical vs. Horizontal

Vertical vs. Horizontal Integration…

Vertical vs. Horizontal Integration

Mapping Industry for Strategy Formulation Globalization  moving up; ie.↑ integration quadrant Cement: globalization limited by high weigh to value ratio Globalization and Localization vary from industry to industry

International Strategies… Multidomestic –Technology and skills are intl, and not product  requires adaptation –HO develops product  affiliates replicate –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 Ex GM, Safeway

International Strategy Global –Maximize intl efficiency, locate activities in low cost countries, standardize product, and manufacture world-class products – ↑ market share if production facility same place –MNCs have bargaining power Bias the financial results  transfer pricing Control location of technology and skill transfer –Reconfigure value-adding activities between countries –MNCs can move operations elsewhere –Take away jobs, no taxes to governments –So governments want to retain MNCs Tax break and infra structure support ↑ investment, ↑ incentive offered

Recommendation for Managing the Process Invest heavily in data collection –Use multiple data sources, tap external sources and develop internal sources to overcome suspect data Determine the potential for critical scale economies Weigh the value of other globalization benefits Rotate country managers more frequently to help them develop a global vision Reassess performance measurement system and reward system Take a balanced approach