1. 7/14/20151 Business Strategy & Policy PSU MGMT #562 Dave Garten daveoutside@alum.mit.edu International Strategy

2. 7/14/2015Dave Garten – Business Strategy2 DeBeers Case Objective: look at how monopoly power affects organizations & global industry -- how govt. policy & competitive forces seek to change it. X Learnings: Antitrust policy is ultimately tied to consumers Even the most powerful organizations have to react to a changing environment It takes many years to bring down or build a powerful position. Changing business models is frightening and risky – it is generally accompanied by resistance.

3. 7/14/2015Dave Garten – Business Strategy3 Session Objectives To Gain an Initial Understanding of: 1. Economic Value of International Strategies (Why?) 2. Options, Barriers and Approaches (What?) 3. Execution Considerations (How?) 4. Organizational Responsibilities (Who?)

4. 7/14/2015Dave Garten – Business Strategy4 Int’l Growth Drivers (Why?) Lowering of Intl Barriers Improving logistics infrastructure Improving communications infrastructure Increasing standards Heightened competition

5. 7/14/2015Dave Garten – Business Strategy5 Why go International? Source: Intel Annual Report, 2004 P&G: Steady int’l growth Intel Revenue

6. 7/14/2015Dave Garten – Business Strategy6 Int’l Strategy Drivers (Why?) International Economies of Scope Gain access to new customers Gain access to low-cost factors of production Develop new core competencies Leverage current core competencies in a new way Manage corporate risk Derived from: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 518

7. 7/14/2015Dave Garten – Business Strategy7 Access to New Customers Customer that are willing to buy Customer that are able to buy Target Market Segmentation Targeting Market Growth $ Product Price Place Promotion

8. 7/14/2015Dave Garten – Business Strategy8 Access to New Customers - Barriers TariffsQuotasNontariff Barriers Taxes levied on Imported Goods or Services Quantity Limits on the Number of Products or Services that can be imported Rules, Regulations, and Policies That Increase the Cost of Importing Products or Services Import Duties Supplemental Duties Variable levies Border levies Countervailing duties Voluntary quotas Involuntary quotas Restricted import licenses Minimum Import limits Embargoes Govt. Policies Govt. procurement procedures Govt. sponsored export subsidies Custom policies Quality standards

9. 7/14/2015Dave Garten – Business Strategy9 Access to Supply Chain Raw Materials Labor Manual Labor Knowledge Workers R&D Technology

10. 7/14/201510 Options, Barriers, and Approaches (What?) What key issues must be addressed with your strategy?

11. 7/14/2015Dave Garten – Business Strategy11 Challenges & Opportunities 1. Heterogeneity across markets 2. Scale and Complexity of Global Operations 3. Unpredictability of economic conditions between countries (volatility)

12. 7/14/2015Dave Garten – Business Strategy12 International Risk Factors Financial – Complexity, Variability Currency Credit Inflation Political Risks Macro scale Micro scale Relationship Risks Communication/Culture Objectives

13. 7/14/201513 Execution Considerations (How?) VRIO?

14. 7/14/2015Dave Garten – Business Strategy14 Imitators Direct Duplication of International Strategy Will competing firms try?  Profits/market share motivate Are they able? Substitutes Strategic alliances, diversification, M&A

15. 7/14/2015Dave Garten – Business Strategy15 Growth Strategies New Business or Competency New Markets Current Business or Competency Current Markets High Risk High or Low Risk Moderate Risk Access new customers Do nothing Access new customers with new competencies Develop new competencies or leverage current competencies in new way

16. 7/14/2015Dave Garten – Business Strategy16 Market entry options Source: Berkowitz

17. 7/14/201517 Organizational Considerations

18. 7/14/2015Dave Garten – Business Strategy18 Int’l Strategy: Organization Cost Efficiency Local Responsiveness Global Multinational X

19. 7/14/2015Dave Garten – Business Strategy19 Appropriate Organizational Structure HighLow High Importance of local responsiveness Importance of global integration Decentralized federation Coordinated federation Centralized hub Transnational federation Source: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 546

20. 7/14/2015Dave Garten – Business Strategy20 Organizational Structures Decentralized federation Centralized Hub Coordinated federation Transnational Full P&L High Autonomy Duplication Full P&L High Autonomy Some Centralized Strategy Less Duplication P&L Low Autonomy Execution Focus Centralized Strategy Less Duplication Full P&L Autonomy Some Centralized Strategy Regional specialization Global leverage of competencies

21. 7/14/2015Dave Garten – Business Strategy21 Strategies for Emerging Markets Then vs. Now Then: low cost production, opportunistic export/marketing. Now: revenue opportunities. Disposable income, reach of media/internet High risks: political, economic & infrastructure Distribution, market data, communications, instability/lack of regulatory discipline, product diversion, counterfeiting, complex networks. Yet…opportunities…each situation is unique General classification mask the complexities (ex: China GDP) Political and social systems, openness, product markets, labor markets, capital markets Corporate control very problematic basis of business/competition so different (Local norms vs. MNC)

22. 7/14/2015Dave Garten – Business Strategy22 Strategies for Emerging Markets Convertibility of profit Long Term Market Potential LowHigh Low High Leading Markets China, India, Brazil Aggressive Investments Chile, Czech, South Africa Platform Investments Russia Trailing Markets Sub-Saharan Africa Source: New Strategies in Emerging Markets by David J Arnold and John A Quelch, SMR, 1998.

23. 7/14/2015Dave Garten – Business Strategy23 Implications for International Strategy Global expectations change the game Standards set at the global level -> launch globally Global sourcing Clusters of competitive advantage are dispersed  Suppliers, consumers, R&D, marketing, production Productivity a key criteria for placement Managed tension of global vs. local Commonality (efficiency) w/ local requirements Overseas assignments, frequent communication “A desk is a very dangerous place from which to view the world…”