environment perspective business

8/12/2019 environment perspective business

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INTERNATIONALSTRATEGY

ENVIRONMENT PERSPECTIVE


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KNOWLEDGE OBJECTIVES1. Identifying International Opportunities: Incentives to use

an International strategy2. Explore the four factors that lead to a basis for

international business-level strategies.

3. Define the three international corporate-level strategies:multidomestic, global, and transnational.

4. Choices of International Entry Mode

5. Strategic Competitive outcomes6. Risks in an International Environments


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Profiting From Global ExpansionEarning high returns from transferring

distinctive competencies to foreign markets.Realizing location economies

Using lower-cost locations reduces overall costsand fosters product differentiation for premiumpricing.

Moving down the experience curve

Larger global markets = more accumulated volume.Global expansion and business-level

strategiesLinked by cost reductions and value creation.


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Pressures for Cost Reduction and LocalResponsiveness

Pressures for cost reductionsGlobal competitors seek to minimize unit coststhrough location economies and attain low-cost

competitor status.In commodity-type product industries, intense pricecompetition predominates strategic concerns.

Pressures for local responsiveness arise from:

Differences in local consumer tastes andpreferences.Differences in infrastructure and traditionalpractices.

Differences in distribution channels amongcountries.


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Pressures for Cost Reduction and LocalResponsiveness


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StrategicCompetitivene

ssOutcomes

HigherPerformanceReturns

Innovation

Use CoreCompetence

Modes ofEntry

Exporting

Establishmentof New Sub.

Licensing

StrategicAlliances

Acquisition

ExploreResources &

CapabilitiesInternational

Strategies

InternationalBus.-LevelStrategy

MultidomesticStrategy

GlobalStrategy

TransnationalStrategy

IdentifyInternational

Opportunities

IncreasedMarket Size

Return onInvestment

Economiesof Scale andLearning

LocationAdvantage

ManagementProblems, Risk,and

First Steps

ManagementProblems, Risk,and First Steps

International Strategy Opportunities & Outcomes

IncreasedMarket Size

Return onInvestment


LocationAdvantage


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IDENTIFY INTERNATIONALOPPORTUNITIES

Mainly for three reasons firms go international1. Lower Production cost

E.g. :- Clothing, Electronics, watch making

2. To secure needed resourcesE.g.:- Gems & Jwellery (Europe:- Roseyblu, Eurostar),Minerals and Energy

3. To extend a product`s life cycleE.g.:- Bajaj Auto (Sri Lanka, Bangladesh & China)


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Benefits of International StrategiesIncreased market size.

Greater returns on major capital investmentsor new products or processes.

Greater economies of scale, scope orlearning.

A competitive advantage through location.


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1. INCREASED MARKET SIZEExpand the size of potential market

Ex. General motors- Asia, Pharmaceutical Firms(85% Firms)- FDI- China

Firms competing in Domestic markets havelimited growth opportunities

Ex. Pepsi and Coca-cola

Invest in R&D to build competitive advantaagesEx. Ranbaxy in Africa


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2. RETURN ON INVESTMENTLarge markets needs heavy investment

Ex.: R&D, Plant and capital

Reverse Engineering

Above average return on Investments


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3. ECONOMIES OF SCALE ANDLEARNING

Economies of scale:- Refers to reduction in unitcost by producing a large volume of a product

Firm can standardize products across countryBorders

Ex. Production and R&D across country---Pepsi &coke

Allow price their product competitively to gainmarket share

Ex. Automobile Industry such as Toyota, GM

Exploit core competencies in international


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Opportunities

ExploreResources &

Capabilities

Use CoreCompetence

StrategicCompetitivene

ssOutcomesInternational

StrategiesModes of

EntryIncreasedMarket Size

Return onInvestment


LocationAdvantage

InternationalBus.-LevelStrategyMultidomesticStrategy

GlobalStrategy


Exporting


Licensing

StrategicAlliances

Acquisition


Innovation

International Strategy Opportunities &utcomes

ManagementProblems, Risk, and

First Steps



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International StrategiesInternational Business Level Strategies

International Corporate Level Strategies

Multi-domestic StrategyGlobal StrategyTransnational Strategy


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Strategies

International Low CostUsually located in home countryExport to international marketsLow value added operations in foreign countries

High value added operations in home countryInternational Differentiation

Countries with advanced or specialized factor conditionsmost likely to use this strategy

Example: Japan, Germany, U.S.


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Strategies

International Focus StrategiesTechnologically advanced firms follow focused low coststrategyFocused differentiation firms compete on the basis of image& designThird group competes on low price by imitating

International Integrated Low Cost/DifferentiationCan be most effective in dealing with diverse marketsOften relies upon flexible manufacturing, total qualitymanagement or rapid communication networks


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Corporate-Level InternationalStrategies

Type of Corporate Strategy selected will have animpact on the selection and implementation of thebusiness-level strategiesSome Corporate strategies provide individualcountry units with flexibility to choose their ownstrategiesOthers dictate business-level strategies from thehome office and coordinate resource sharingacross unitsThree

Corporate

Strategie

Multi-Domestic Strategy

Global Strategy

Transnational Strategy


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Multi-domestic Strategy

Strategy and operating decisions aredecentralized to strategic business units (SBU) ineach country.Products and services are tailored to localmarketsBusiness units in each country are independentof each other

Assumes markets differ by country or regions

Focus on competition in each market


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Global Strategy

Products are standardized across nationalmarketsDecisions regarding business-level strategies arecentralized in the home office

Strategic business units (SBU) are assumed tobe interdependentOften lacks responsiveness to local marketsRequires resource sharing and coordination

across borders (which also makes it difficult tomanage)


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Transnational Strategy

Seeks to achieve both global efficiency and localresponsiveness

Difficult to achieve because of simultaneousrequirements for strong central control andcoordination to achieve efficiency and localflexibility and decentralization to achieve localmarket responsiveness

Eg.FORD


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MULTIDOM

-ESTICSTRATEGY

HIGH

LOW

HIGHLOW

NEED FOR LOCAL RESPONSIVENESS

NEED FORGLOBAL

INTEGRATION

-Strategy

When is each strategyappropriate?


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GLOBALSTRATEG

Y

MULTIDOM-ESTIC

STRATEGY

HIGH

LOW

HIGHLOW


-Strategy


NEED FORGLOBAL

INTEGRATION


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GLOBALSTRATEG

Y

TRANSNATI-ONAL

STRATEGY

MULTIDOM-ESTIC

STRATEGY

HIGH

HIGHLOW


-Strategy

NEED FORGLOBAL

INTEGRATION


LOW


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Opportunities

ExploreResources &

Capabilities

Use CoreCompetence

StrategicCompetitiveness

OutcomesInternational

StrategiesModes of

EntryIncreasedMarket Size

Return onInvestment


LocationAdvantage

InternationalBus.-Level

StrategyMultidomesticStrategy

GlobalStrategy


Exporting


Licensing

StrategicAlliances

Acquisition


Innovation

ManagementProblems, Risk,and

First Steps


International Strategy Opportunities & Outcomes


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Choice of International Entry Mode

Common way to enter new international markets.No need to establish operations in other nations.Establish distribution channels throughcontractual relationships.May have high transportation costs.May encounter high import tariffs.May have less control on marketing and

distribution.Difficult to customize product.

Exporting


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Firm authorizes another firm to manufacture &sell its productsLicensing firm is paid a royalty on each unitproduced and sold.Licensee takes risks in manufacturinginvestments.Least risky way to enter a foreign market.

Licensing firm loses control over product quality &distribution.Relatively low profit potential.

Licensing


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Enable firms to shares risks and resources toexpand into international ventures.Most joint ventures (JVs) involve a foreign corp.with a new product or technology & a hostcompany with access to distribution or knowledgeof local customs, norms or politics.May experience difficulties in merging disparatecultures.May not understand the strategic intent ofpartners or experience divergent goals.

Eg. Maruti udyog and suzuki.

Strategic Alliances


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Enable firms to make most rapid internationalexpansion.Can be very costly.Legal and regulatory requirements may presentbarriers to foreign ownership.Usually require complex and costly negotiations.Potentially disparate corporate culture.

Acquisitions


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Most costly & complex of entry alternatives. Achieves greatest degree of control.

Potentially most profitable, if successful.Maintain control over technology, marketing anddistribution.May need to acquire expertise & knowledge that is

relevant to host country.

New Wholly-Owned Subsidiary

Could require hiring host country nationals orconsultants at high cost.


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The Advantages and Disadvantages of Different Entry Modes

Entry Mode Advantages Disadvantages

Exporting Ability to realize location andexperience-curve economies

High transport costs Trade barriers Problems with local marketing agents

Licensing Low development costs and risks Inability to realize location andexperience-curve economies

Inability to engage in global strategic

coordination Lack of control over technology

Franchising Low development costs and risks Inability to engage in global strategiccoordination

Lack of control over quality

Jointventures

Access to local partners knowledge Shared development costs and risks

Political dependency

Inability to engage in global strategiccoordination

Inability to realize location andexperience-curve economies

Lack of control over technology

Wholly ownedsubsidiaries

Protection of technology Ability to engage in global strategic

coordination Ability to realize location and

experience-curve economies

High costs and risks


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Strategic Competitiveness Outcomes

International diversification facilitates innovationin the firm.Provides larger market to gain more and fasterreturns form investments in innovationMay generate resources necessary to sustain alarge-scale R&D program.Generally related to above-average returns,assuming effective implementation andmanagement of international operations.International diversification provides greater

economies of scope and learning.


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Risks in the International Environment

POLITICAL RISK

ECONOMIC RISK

Political instability in indonesiabrought about by continuing ethnicstrife

Uncertain future of peace in themiddle east because of changes innational leaders

Failure of the european unionsquest for economic superpowerstatus because of inter-countrydisagreements

Chinas difficulty in enforcingintellectual property rights on CDssoftware,etc.,

Russias struggle with lowproductivity, currency problems andhigh unemployment

Exchange rate exposure due to theU.S.-conadian dollar fluctuations


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Major Risks of International DiversificationPolitical Risk

National government instability may createpotential problems for internationallydiversified firms.

Potential changes in attitudes or regulationsregarding foreign ownership.Legal authority obtained from previous

administration may become invalid. Potential for nationalization of firms assets.


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Major Risks of International Diversification

Econ. risks are interdependent with political risks.Differences and fluctuations in internationalcurrencies may affect value of assets & liabilities.

This affects prices & thus ability to compete.Differences in inflation rates may affect inter-nationally diversified firms ability to compete. Enforcing intellectual property rights on CDs,

software, etc.

Economic Risk


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environment perspective business