1. INTERNATIONAL STRATEGY: CREATING VALUE IN GLOBAL MARKETS
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2. INTERNATIONAL STRATEGY Overview of the Global Economy
Globalization
The increase in international exchange, including trade in goods and services as well as exchange of money, information, ideas, and information.
The growing similarity of laws, rules, norms, values, and ideas across countries.
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3. INTERNATIONAL STRATEGY Overview of the Global Economy
Extremes in the effects of global capitalism:
The economies of East Asia have attained rapid growth and improved standards of living
Income in Latin America grew by only 6 percent in the past two decades
Average incomes in sub-Saharan Africa and the old Eastern European bloc have actually declined
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4. INTERNATIONAL STRATEGY Porter’s Diamond of National Advantage
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5. Global Factors Affecting a Nation’s Competitiveness
INTERNATIONAL STRATEGY
Global Factors Affecting a Nation’s Competitiveness
Factor Endowments
The nation’s position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry.
Demand Conditions
The nature of home-market demand for the industry’s product or service.
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6. Global Factors Affecting a Nation’s Competitiveness
INTERNATIONAL STRATEGY
Global Factors Affecting a Nation’s Competitiveness
Related and Supporting Industries
The presence or absence in the nation of supplier industries and other related industries that are internationally competitive.
Firm Strategy, Structure, and Rivalry
The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.
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7. INTERNATIONAL STRATEGY
Factor Endowments
To achieve competitive advantage, factors of production must be created
Industry and Firm specific:
The pool of resources at a firm’s or country’s disposal is less important than the speed and efficiency with which the resources are deployed
Firm-specific knowledge and skills created within a country that are rare, valuable, difficult to imitate and rapidly and efficiently deployed are the factors that create national competitive advantage
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8. INTERNATIONAL STRATEGY
Demand Conditions
The demands that consumers place on an industry for goods and services
Demanding consumers drive firms in a country to:
Meet high standards
Upgrade existing products and services
Create innovative products and services
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9. INTERNATIONAL STRATEGY Related and Supporting Industries
Enable firms to manage inputs more effectively
Allow joint efforts among firms
Share technical capabilities and infrastructure
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10. INTERNATIONAL STRATEGY Firm Strategy, Structure and Rivalry
Rivalry is intense in nations with conditions of:
Strong consumer demand
Strong supplier bases
High new entrant potential from related industries
Competitive rivalry stimulates innovation and new means of achieving competitive advantage
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11. INTERNATIONAL STRATEGY Firm Strategy, Structure and Rivalry
Competitive rivalry increases the efficiency with which firms
Develop within the home country
Market within the home country
Distribute products and services within the home country
Firms faced with intense domestic competitive rivalry will often develop business strategies and structures allowing them to compete outside their domestic markets
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12. Porter’s Diamond of National Advantage – Applied to India
INTERNATIONAL STRATEGY
Porter’s Diamond of National Advantage – Applied to India
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13. Motivation for Companies to Expand Internationally
INTERNATIONAL STRATEGY
Motivation for Companies to Expand Internationally
Increase the size of potential markets
Attain economies of scale
Take advantage of “arbitrage” opportunities
Extend the life cycle of a product
Optimize the physical location for every activity in its value chain
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14. Motivation for Companies to Expand Internationally
INTERNATIONAL STRATEGY
Motivation for Companies to Expand Internationally
Optimizing the location for every activity in a firm’s value chain can result in
Performance Enhancement
Cost Reduction
Risk Reduction
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15. INTERNATIONAL STRATEGY Potential Risks of International Expansion
Political and Economic Risk
Social unrest
Military turmoil
Demonstrations
Violent conflicts and terrorism
Laws and their enforcement
Unstable governments
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16. INTERNATIONAL STRATEGY International Risk Rankings
Source: Transparency International, 2010
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17. INTERNATIONAL STRATEGY Corruption Perceptions Index (CPI)
The Transparency International 2010 CPI ranks the most corrupt countries in the world
The scores range from ten (least corrupt) to zero (highly corrupt)
The five most corrupt countries are
Somalia (CPI Score: 1.1)
Myanmar (CPI Score: 1.4)
Afghanistan (CPI Score: 1.4)
Iraq (CPI Score: 1.5)
Uzbekistan (CPI Score: 1.6)
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18. INTERNATIONAL STRATEGY International Risk Rankings
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19. INTERNATIONAL STRATEGY Potential Risks of International Expansion
Currency Risk
Currency exchange fluctuations
Appreciation (strengthening) of the US Dollar
Government management of monetary policy and intervention in financial markets
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20. INTERNATIONAL STRATEGY Potential Risks of International Expansion
Management Risks
Different culture
Different customs
Different language
Different income levels / standard of living
Country-specific customer preferences
Less developed distribution system / infrastructure
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21. INTERNATIONAL STRATEGY Global Dispersion of Value Chains
Outsourcing
Utilizing firms in other countries to perform value-creating activities that were previously performed in-house within the firm’s home country
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22. INTERNATIONAL STRATEGY Global Dispersion of Value Chains
Offshoring
Shifting an activity that was previously performed in a domestic location to a foreign location.
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23. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Distinct global strategies emerge from the opposing pressures of Reducing Costs and Adapting to Local Markets
Lowering unit costs maintains competitiveness in pricing in global markets
May require locating facilities where a cost advantage can be achieved
Adapting to local markets requires modifying product attributes to satisfy varying consumer preferences in different countries
May add costs to differentiate products
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24. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
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25. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
International Strategy
Based on diffusion and adaptation of the parent company’s knowledge and expertise to foreign markets
The primary goal of the strategy is worldwide exploitation of the parent firm’s knowledge and capabilities that foreign competitors lack
Low degree of global adaptation
Core competencies associated with centralized headquarters location
Low pressures for local adaptation and lowering costs
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26. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
International Strategy – Strengths / Limitations
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27. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Global Strategy
Competitive strategy is centralized and controlled largely by corporate administration
Emphasizes achievement of economies of scale to lower global costs
Pressure for adaptation is low and pressure for lowering costs is high
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28. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Global Strategy – Strengths / Limitations
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29. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Multidomestic Strategy
Emphasis is differentiating products and services to adapt to local markets
Decision-making is more decentralized
Pressure for local adaptation is high and pressure for lowering costs is low
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30. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Multidomestic Strategy – Strengths / Limitations
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31. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Transnational Strategy
Optimization of tradeoffs associated with efficiency, local adaptation, and learning
Firm’s assets and capabilities are dispersed according to the most beneficial location for a specific activity
Pressures for both local adaptation and lowering costs is high
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32. Achieving Competitive Advantage in Global Markets
INTERNATIONAL STRATEGY
Achieving Competitive Advantage in Global Markets
Transnational Strategy – Strengths / Limitations
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33. INTERNATIONAL STRATEGY Global vs. Regional Expansion
Advantages of regional vs. global expansion
Geographic proximity
Cultural, language, customer preference similarities
Linked infrastructure and distribution
Favorable trading relationships
Most companies are involved in regional or bi-regional expansion, not global expansion
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34. INTERNATIONAL STRATEGY Entry Modes of International Expansion
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35. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Exporting
Producing goods in one country to sell to residents of another country
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36. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Exporting Benefits
Simplest way to enter a market with least investment risk
Foreign distribution partners facilitate entry
Exporting Risks / Limitations
Little control over local distribution practices
Potential competition with other distributor products
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37. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Licensing / Franchising
Contractual agreement in which a company receives a royalty or fee in exchange for the right to use its intellectual property
Restrictions on use of intellectual property are part of any licensing or franchising agreement
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38. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Licensing or Franchising Benefits
Low investment risk
Avoid trade barriers and currency risk exposure
Licensing or Franchising Risks / Limitations
Loss of control
Lower profits due to royalty / fees paid to licensee
Intellectual property rights potentially at risk
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39. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Strategic Alliances and Joint Ventures
Partnership arrangements with foreign firms or other multinationals
Strategic alliances usually are limited to resource sharing arrangements, marketing and distribution
Joint Ventures involve the creation of a third-party enterprise with joint ownership and/or shared assets
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40. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Strategic Alliances and Joint Ventures -Benefits
Shared risks with less investment than wholly-owned subsidiaries
Gain market or technical knowledge and operating expertise from partners
Shared revenues and profits
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41. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Strategic Alliances and Joint Ventures Risks / Limitations
Success usually requires the following:
Defined strategy that is mutually acceptable
Defined responsibilities and contributions
Mutual trust
Unifying “common culture”
Detailed procedures and documentation defining all aspects of the partnership arrangement
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42. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Wholly Owned Subsidiaries
A business in which a multinational company owns 100 percent of the stock.
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43. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Wholly Owned Subsidiaries - Benefits
Provides greatest degree of control of all company activities
Highest investment cost and risk – but can lead to highest returns
No revenue or profit sharing
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44. INTERNATIONAL STRATEGY Entry Modes of International Expansion
Wholly Owned Subsidiaries – Risks / Limitations
Highest investment risk – assumed entirely by parent company
Must go through learning curve relating to cultural, political and legal environment in the host country
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45. Case Analysis: Marketing to the “Bottom of the Pyramid”
INTERNATIONAL STRATEGY
Case Analysis: Marketing to the “Bottom of the Pyramid”
For years, companies focused on the upper portion of the income pyramid to market products
Recently, more companies have found success marketing to the poorer populations of developing countries
Micro Loans have become an industry in itself, catering to low income families wishing to start businesses
Some companies, like Unilever, have modified packaging and item quantity marketed to low income customers to meet the restrictions of their standards of living
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46. Case Analysis: India and the Diamond of National Advantage
INTERNATIONAL STRATEGY
Case Analysis: India and the Diamond of National Advantage
Over one-fifth of Fortune 1000 companies outsource their software requirements to Indian firms
Indian software exports have increased from $5.9 billion in 2000 to a projected $80 billion in 2010
The Indian software industry has grown at a 25% annual rate over the past decade
More than 800 firms in India are involved in software services as their primary activity
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47. Case Analysis: India and the Diamond of National Advantage
INTERNATIONAL STRATEGY
Case Analysis: India and the Diamond of National Advantage
Software and IT firms in India are projected to employ 2.3 million people by 2010
The IT sector is expected to contribute 7% of India’s GDP in 2010
India has focused on educating students in IT to provide the labor resources necessary to staff this industry
Global demand conditions for software continue to increase as more developed countries rely more heavily on complex software systems to increase efficiency
India now has both the supplier base and competitive advantage against rivals in the software development industry
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48. Case Analysis: India and the Diamond of National Advantage
INTERNATIONAL STRATEGY
Case Analysis: India and the Diamond of National Advantage
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49. Case Analysis: How Wal-Mart Profits from Arbitrage
INTERNATIONAL STRATEGY
Case Analysis: How Wal-Mart Profits from Arbitrage
Wal-Mart’s above-average profitability has been attributed to factors such as superior logistics, strict overhead control, and effective use of information systems
Wal-Mart is aggressively pursuing international expansion across the globe
Another key factor in Wal-Mart’s success has been its ability to purchase large volumes of goods at very cheap prices, sourcing more and more from foreign countries such as China
It is estimated that China alone may be supplying between $50 - $70 billion annually, generating savings of $16 - $23 billion annually
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50. Case Analysis: How Deere & Co. Learned From its Indian Operations
INTERNATIONAL STRATEGY
Case Analysis: How Deere & Co. Learned From its Indian Operations
In an attempt to enter the Indian agricultural market for farm equipment, Deere engineered small no-frills tractors for he Indian market
Deere didn’t consider these basic tractors would appeal to US customers when it first introduced them to India
Ironically, Indian manufacturer Mahindra was beginning to market small, basic tractors to US consumers needing basic features for their personal properties
Deere has introduced slightly modified versions of its Indian tractor design for use in the US, with great success
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