Chapter 1 The Internationalization Process Key Points Rationale Process Dimensions Course Content Overview

MOS 4404 International Enterprise Professor: Trevor Hunter Office: FB 303 Office Hours: Wednesdays 1:30-3:30pm Office Phone: ext Class Times: Mondays 10:30 – 11:30 Wednesdays 10:30 – 12:30

Teaching Methodology Combination of lectures and cases  Lectures on Mondays, cases on Wednesdays  Cases based on lecture topics used to reinforce learning Required Text: International Management, Beamish, Morrison, Inkpen & Rosenzwieg, 2003, 5 th edition

Student Evaluation Individual work – Case write-ups (two) – 40% Group Consulting Presentation (one) – 40% Individual class participation (ongoing) – 20% No mid-term test or final exam – poor way to evaluate performance Integrative Consulting Report - a much better way of measuring understanding

Course Purposes Course Perspective:  Globalization is the pervasive force in our world and the mechanism through which globalization occurs is the MNC Important to examine and understand how and why MNCs are created, what they do and how the different entry modes should be managed

Course Purposes Examine and understand how to manage MNCs, internationalization and the issues associated with international business Question 1: Should we internationalize? Strategic: MOS 4410 Question 2: Where is the best place to go? Analysis: MOS 2285 Question 3: How should we enter? Action: MOS 4404

Rationale Firms become international in scope for a variety of reasons:  Desire for continued growth  Unsolicited foreign orders  Domestic market saturation,  Potential to exploit a new technological advantage The dominant reason relates to performance

Process Internationalization is the process by which  Enter new countries to take advantage of that country’s relative comparative advantage  Establish and conduct transactions with firms or customers from other countries.  Firms increase their awareness of the influence of international activities on their future

Process Firms internationalize to take advantage of a country’s relative comparative advantage  Firms internationalize due to market expansion or efficiency drivers  Market expansion – sell the same thing to more people  Efficiency – get what they need (raw materials, labour, skills, investment) cheaper

Process By internationalizing firms improve their performance (i.e. increase profits) by either increasing sales volumes (market expansion) or reducing their costs (efficiency) Internationalizing is not as easy as it seems and depending upon why the firm internationalizes or where it goes, the method may be different and must correspond

Process Decision to internationalize ME E CountryEntry Mode Environmental Factors Corporate Capabilities Ability to Internationalize Ability to Manage Market Entry

Process Development of an awareness and appreciation for the role of foreign competition becomes integral This is key due to the “Liability of Foreignness” firms often face when entering new markets Opportunities exist to turn the liability into an asset.

Dimensions of Internalization Internationalization has both inward-looking and outward-looking dimensions. The outward-looking perspective incorporates an awareness of the nature of competition in foreign markets

Dimensions of Internalization (cont.) Includes the following modes of activities:  Exporting.  Acting as licensor to a foreign company.  Establishing joint ventures outside the home country with foreign companies.  Establishing or acquiring wholly owned businesses outside the home country.

Dimensions of Internalization (cont.) Similar to the Sequential Approach theory of internationalization: As firms build confidence, experience and success: Existing Business New Business Partially OwnedWholly Owned (1) Capital Participation (2) Joint Venture (3) Acquisition (4) Greenfield

Dimensions of Internalization (cont.) Not all firms do or can follow the sequential process of internationalization:  Dependent upon industrial and environmental conditions  Need to coordinate operations in many countries and many value chain activities

Dimensions of Internalization (cont.) Internationalization affects firms in equally important ways from an inward perspective. The related modes of activity include:  Importing/sourcing.  Acting as licensee from a foreign company.  Establishing joint ventures (JVs) inside the home country with foreign companies.  Managing as the wholly owned subsidiary of a foreign firm

Dimensions of Internalization (cont.) Many firms have an appreciation of the global environment but do not seek out international opportunities in countries that differ greatly Questions to explore:  What products/services can be “global”?  How can a firm know if it has a globally competitive product?  How can the firm successfully take a product global?

Course Content Overview The Global Business Environment The World of International Trade  Learning how to find an appropriate location for international expansion What makes risks, opportunities, compatibility etc.  Understanding the international trade environment STEP analysis Comparative and competitive advantage

Course Content Overview Managing Export Operations  To where should the firm expand?  What is the best way to enter a market?

Course Content Overview Global Sourcing Strategy  Is it better to import a good/service or purchase or produce locally? From where? Degree of integration vs. importing Organization structure – one plant or many, related or autonomous? Where should R&D be located?

Course Content Overview Licensing  Opportunity to leverage technology without costs of production and distribution  Core vs. periphery  Risks?

Course Content Overview The Design and Management of International Joint Ventures  Why do them?  Advantages vs. risks  Types of cooperation  Guidelines for successful design and management

Course Content Overview International Strategy Formulation  How do MNCs formulate product/market strategy to maximize international competitiveness?  Conflicting pressures to achieve global efficiencies and be locally responsive  Keeping on track despite all the environmental influences and uncertainty

Course Content Overview (cont.) The Evolving Multinational  How do MNCs change over time and in response to environmental factors?  “Base-of-the-pyramid” marketing

Course Content Overview (cont.) The Global Manager Managing the New Global Workforce  Developing and leveraging global strategic skills Manage change, transition, cultural diversity Work in flexible structures  Fostering and leveraging diversity

Course Content Overview (cont.) Strengthening International Government Relations  Non-market strategy – a key resource in overcoming the liability of foreignness  Opportunities exist to turn the liability into an asset