Chapter 8 Looking at International Strategies 2 OBJECTIVES Define international strategy and identify its implications for the strategy diamond 1 Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage 2 Use the CAGE framework to identify desirable international arenas 3 Describe different vehicles for global expansion 4 Apply different international strategy configurations5 Outline the international strategy implications of the static and dynamic perspectives 6 3 DELL GOES TO CHINA Dell became China’s largest computer system provider in just 5 years If we’ve not in what will soon be the second-biggest PC market in the world, then how can Dell possibly be a global player? Strategic decisions Vehicles Staging Consumers first, then corporations U.S. Assemble and distribute itself Corporations first China Partner 4 INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND Economic logic Arenas VehiclesStaging Differentiators Arenas • Which geographic areas will we enter? • Which channels will we use in those areas? • Which international market-entry strategies will we use? Alliances? Acquisitions? Greenfield investments? Vehicles • How does being international make our products more attractive to our customers? Differentiators • How does our international strategy lower our costs, raise the prices we can charge, or create synergies between our business? Economic logic • When will we go international? • How quickly will we expand into international markets? • In what sequence will we implement our entry tactics? Staging 5 PROS VS. CONS OF INTERNATIONAL EXPANSION • Pepsi’s ambitious expansion in the 1990s resulted in a decreased international market share • Wal-Marts international businesses perform poorly relative to its U.S. business Many international expansions fail  Newness can be a disadvantage (e.g., your firm must move up the learning curve)  Foreignness can be a liability (e.g., your managers may not understand local culture)  Governance and coordination costs increase as you manage from a distance Why? 6 KEY FACTORS – GLOBAL ECONOMIES OF SCALE Key factors  Global economies of scale  • Pharmaceutical firms such as Pfizer, can leverage large R&D budgets • CitiGroup, McDonald’s, and Coca-Cola can leverage brands • MITY can leverage its excess capacity to produce chairs and thereby reduce average costs Global expansion may be attractive if it allows you to leverage fixed assets over new markets 7 KEY FACTORS – LOCATION Key factors  Global economies of scale  Location  • Input costs • Competitors • Demand conditions • Regulatory environment • Presence of complements Choosing the right location can provide advantages in terms of A five-forces analysis can help reveal the attractiveness of a location  8 KEY FACTORS – MULTIPOINT COMPETITION Key factors  Global economies of scale  Location  Multipoint competition Expanding into a new market may provide an opportunity for a “stronghold assault” For example, French tire maker Michelin had negligible presence in the U.S. in the 1970s. It learned of Goodyear’s plans to expand into Europe, so it launched a counter attack. It started selling tires in the U.S. at or below cost, and thereby forced Goodyear to drop prices and cut profits in its core market    9 KEY FACTORS – LEARNING AND KNOWLEDGE SHARING Key factors Expanding into a new market can create opportunities to innovate, improve existing products in existing markets, or develop ideas for new markets SC Johnson, for example, used technology developed in its European operation (a product for repelling mosquitoes in homes) to create the “ Glade Plug-ins” air freshener in the U.S.  Global economies of scale  Location  Multipoint competition  Learning and knowledge sharing     10 THE CAGE DISTANCE FRAMEWORK Attributes creating distance Industries or products affected by distance Cultural distance Administrative distance Geography distance Economic distance Different languages Different ethnicities; lack of connective ethnic or social networks Different religions Different social norms Products have high linguistic content (TV) Products affect cultural or national identity of consumers (foods) Product features vary in terms of size (cars), standards (electrical appliances), or packaging Products carry country- specific quality associations (wines) Absence of colonial ties Absence of shared monetary or political association Political hostility Government policies Institutional weakness Government involvement is high in industries that are • Producers of staple goods (electricity) • Producers of other “entitlements” (drugs) • Large employers (framing) • Large suppliers to government (mass transportation) • National champions (aerospace) • Vital to national security (telecom) • Exploiters of natural resources (oil, mining) • Subject to high sunk costs (infrastructure) Physical remoteness Lack of a common border Lack of sea or river access Size of country Weak transportation or communication links Differences in climates Products have a low value-of- weight or bulk ratio (cement) Products are fragile or perishable (glass, fruit) Communications and connectivity are important (financial services) Local supervision and operational requirements are high (many services) Differences in consumer incomes Differences in costs and quality of • Natural resources • Financial resources • Human resources • Infrastructure • Intermediate inputs • Information or knowledge Nature of demand varies with income level (cars) Economies of standardization or scale are important (mobile phones) Labor and other factor cost differences are salient (garments) Distribution or business systems are different (insurance) Companies need to be responsive and agile (home appliances ) Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf. [...]... of internationalization because a firm will claim to have no international operations and yet directly or indirectly base production or service delivery abroad Country A Production Country B Customer service “Domestic” company Home country Country C Logistics 19 INTERNATIONAL STRATEGY CONFIGURATIONS Relatively few opportunities to gain global efficiencies Relatively high local responsiveness Multinational... Multinational configuration Build flexibility to respond to national difference through strong, resourceful, entrepreneurial, and somewhat independent national or regional operations Requires decentralized and relatively self-sufficient units Example : MTV initially adopted an international configuration (using only American programming in foreign markets) but then changed its strategy to a multinational one... evolve from a decentralized, profit-center configuration to one that operates as a single, global company Firms like Nestle have taken lessons from leading consulting firms such as McKinsey and Company, which are globally dispersed but have a hard-driving, one-firm culture at their core Global configuration Build cost advantages through centralized, globalscale operations Requires centralized and globally... managing diverse teams in a worldwide work force 23 EXPATRIATES AND INPATRIATES Expatriates From the home country Inpatriates From the local or host country 24 HOW WOULD YOU DO THAT? If you were CEO, how would you build a global perspective in your executives? Tactic Action steps 1 Fewer than 15% of executives have substantive international experience Teams ? 2 Training ? 3 Transfers ? 4 ??? ? 25 ... in a different language Relative low local responsiveness International configuration Exploit parent-company knowledge and capabilities through worldwide diffusion, local marketing, and adaptation The most valuable resources and capabilities are centralized; others, such as local marketing and distribution, are decentralized Example : When Wal-Mart initially set up its operations in Brazil, it used... innovate  Close worldwide coordination and communication among business units, suppliers, complements and customers 22 DEVELOPING A GLOBAL MIND-SET Global skills Having an appreciation for the differences between countries and people and seeing these differences as opportunities Global perspective Global mindset Having developed skills for managing diverse teams in a worldwide work force 23 EXPATRIATES... as a model for international expansion Many opportunities to gain global efficiencies Transnational configuration Develop global efficiency, flexibility, and worldwide learning Requires dispersed, interdependent, and specialized capabilities simultaneously Example : Nestle has taken steps to move in this direction, starting first with what might be described as a multinational configuration Today, Nestle...ADMINISTRATIVE DISTANCE Free Trade Agreements • FTA’s • Open foreign markets to US exports • Antidumping Import Laws Legal concerns for US firms Foreign Corrupt Practices Act Intellectual Property Protection • Anti-bribery provisions • Patent Cooperation Treaty • USPTO 11 ADMINISTRATIVE DISTANCE Decreased distance between US, Mexico, and Canada... HewlettPackard give particular subsidiaries a worldwide mandate to leverage and disseminate their unique capabilities and specialized knowledge worldwide Source: Bartlett, C., S Ghoshal, & J Birkenshaw, Transnational Management (New York: Irwin, 2004) 20 BORN – GLOBAL FIRMS More and more firms, even young, small ones, have operations that bridge national borders Logitech Founded by R&D Production • 2 Italians... Taiwan 30% of global PC mouse business by 1 989 21 HOW TO SUCCEED AS A GLOBAL START-UP Consider if you should be a global start-up • Do you need human resources from other countries to succeed? • Do you need financial capital from other countries to succeed? • If you go global, will target customers prefer your services over competitor's? • Can you put an international system in If yes, Put together tools . Chapter 8 Looking at International Strategies 2 OBJECTIVES Define international strategy and identify its implications for the strategy diamond 1 Understand. vehicles for global expansion 4 Apply different international strategy configurations5 Outline the international strategy implications of the static and dynamic perspectives 6 3 DELL GOES TO. would want to expand internationally and explain the relationship between international strategy and competitive advantage 2 Use the CAGE framework to identify desirable international arenas 3 Describe