IBM End Course Review

8/12/2019 IBM End Course Review

http://slidepdf.com/reader/full/ibm-end-course-review 1/55

International Business Management

End Course Review & Reflections

Professor Sougata Ray

Indian Institute of Management Calcutta



Influences on International Business

EXTERNAL INFLUENCES

COMPETITIVEENVIRONMENT

PHYSICAL ANDSOCIETAL FACTORS

• Political policies andlegal practices

• Cultural factors• Economic forces• Geographical influences

OPERATIONS

MOTIVES /OBJECTIVES

MEANS

STRATEGY



Domestic

Business

The Usual Pattern of Internationalization

HIGH

MEDIUM

LOW

CMode of operations

Limited

foreign

functions,usually

export/

import

Extensive

production

abroad with

FDI and all

functions

Limited foreign

production and

multiple functions

A

Impetus forinternational

business

Active search

for opportunities

Passive

response to

proposals

D

One

Several

Many

Number of foreign countries in

which a firm does business

E

Quite

similar

Very

dissimilar

Moderately

similar

Degree of

similarity

between

foreign and

domestic

countries

B

Other firms

handle external

contracts

Company handles

its own foreign

operations

Internal versus

external handling of foreign operations



Choice of Markets

Choice of Products

Mode of Entry

Winning the Local Battle

Speed of Global Expansion

A Framework for Strategic Global Expansion

Motives for Internationalization

Transplanting the Corporate DNA

Global Strategy & Integration




Growth imperative

Better profit realization

Efficiency imperativeSpreading risk

Accessing technology

To be present in the lead market




Learning & innovation

Preempting competition - strategic

positioningDefending the home market (cross parry)

Following the competitor

Following the customersBandwagon effect



Attractiveness of Product Lines asLaunch Vehicles for International Entry

2 1

Moderately Most

Attractive Attractive

4 3

Least Moderately

Attractive Attractive

Low High

Expected Payoffs from Globalization

Low

High

Required

Degree

Of

Local

Adaptation



Which Countries

• Stand-alone attractiveness ofpossible countries

Country factors

• market size, growth, profitability

• country risk

Company factors• competitive advantage

• country fit and cultural compatibility



Which Countries

• Consideration of how many countries• focus vs. coverage

• Viewed as a portfolioHi

Country

AttractivenessLo

Lo Hi

Competitive Advantage



Which Countries

• Strategic contribution– some countries have value beyond their

stand-alone attractiveness• scale

• advanced demand or technology– leading global customers, innovation centres

• Competitive interaction– some countries are important for their

competitive implications• net performance (self – competitors)• signalling



Drivers of a Market’s Strategic

Importance

Low High

High

Low

Learning Potential

Market

Potential



A Framework for Choice ofMarkets

2 1

Phased-in Rapid

Entry Entry

4 3

Ignore for Opportunistic

now Entry

Low High

Firm’s Ability to Exploit the Market

Low

High

Strategic Importance

of Market



Classical Entry Mode Options

Pure Entry Options

Intel's chips

Product Export

Cola giants

FDI

McDonalds outlets

3rd party licensing

Classical Entry Modes



Export strategy : Pros & Cons

PROS• No new Investments

• Very profitable onvariable cost basis

• Economies of large-scale production

• capacity utilization up

• familiar production

environment• Low S.T forex risk

exposure

CONS• Existing slack capacity

used up by domesticdemand

• formidable tariff, non-tariff & other barriers

• high exposure to LTforex risk

• JIT & CRM difficult



Licensing Strategy : Pros & ConsPROS

• Very high ROI

• No new Cap-ex; fast

• Income goes directlyinto profits

• Low cyclical incomefluctuation [hedgingcyclical biz risk]

• tax benefits• low political risk

• Test Mktg.; tech info.

CONS

• lower NPV relatively

• limited lifeagreements

• lack of control overlicensee’s quality

• Licensee may become

competitor



SALES EXPANSION

OBJECTIVES

Overcome hightransportcosts

Domestic capacityconstrain

Gains from scaleeconomies

Trade restrictions

Barriers because ofcountry-of-origin effects(nationalism,product image,delivery risk)

Lower productioncosts abroad

RESOURCE ACQUISITION

OBJECTIVES

Savings through verticalintegration

Savings through

rationalized production

Gain access to cheaperor different resourcesand knowledge

Need to lower costs as

product maturesGain governmentalinvestment incentives

RISK MINIMIZATION

OBJECTIVES

Diversification of customerbase (same motivation asfor sales expansion)

Diversification of supplierbase (same motivation asfor resource acquisitionobjectives

Following customers

Preventing competitors’advantage

POLITICAL

OBJECTIVES

Developing relationswith host countrygovernments andbetter integrationwith society –participating in hostcountry’sdevelopment

Influencingusually throughfactors underresource

acquisitionobjectives

Motivations for Foreign DirectInvestments



Competitive advantages before direct investment

Companies invest directly only if they think they hold somesupremacy over similar companies in countries of interest

competitive advantage—results from a foreign company’sownership of some resource unavailable at the same priceor terms to the local market

companies enjoy some monopoly advantage if

they can borrow capital at a lower interest rate thancompanies from another country

their home-country’s currency has high buying power

Advantages after direct investmentSelling internationally is efficient

Spreads the costs of operations by leveraging global valuechain

Sharing knowledge leading to superior innovation capabilities

Advantages of FDI



Mode of Entry – Finer Options

• A set of tradeoffs

TimeRisk Own subsidiary / Organic Mode

Cost Acquisition

Joint Venture

License / Franchise

Own Distributor

Export

ControlLearning

Management Involvement



Strategy Option Comparisons

Parameter Subsidary Joint Ventur Licensing Exports

Total Returns High High moderate to low Moderate

Capital Requireme high moderate negligible low

Mgt resource costV. high high small Moderate

Control over ops High moderate low high

Commercial risk V. High High low low

political risk High moderate low low

Forex risk High High lowest low

tax rate [effectiv High High lower V. High

Technology risk V. low moderate can be high low

Speed of entry Moderate Low Moderate High

Access to Feedba V. high High Low V. low

Benefit of EOS Moderate moderate Low high

Local adaptation High V. High Moderate low



Key decisions in FDI

3 key decisions

Costs, Tariffs, LT forex risk,

Political risk, Mkt size

Location decision

Degree and method

of ownership

Ownership decision

degree of control, power balance

perspectives

Control decision

Key decisions



LOCATION DECISION

Produce outside & Import Produce locally

Company’s home

plants

3rd country

plantsOWNERSHIP

DECISION

Equity Investment

Licensing to 3rd party

Fully owned

subsidiary

Joint Venture CONTROL

DECISIONS

Di l



Wirelesscard

(Malaysia)

Case,keyboard,

hard drive(Thailand)

Displayscreen,memory

(S. Korea)

Assembly(Mexico)

Productdesign,mfr

microprocessor,U.S. marketing

(U.S.)

Location Economies

Lenovo-ThinkPad

laptop computer

Creating a Global Web



CONTROL DECISION

------------------------------

Control exercised by

Tech.

Shares held

Agreement

provisions

Key

Imports

Market

Access



Selection Criteria for Entry ModeChoice

• Market attractiveness - Short, Medium &Long Term– Size, growth and profit potential

• Country risk exposure• Regulatory situation

• Strategic importance of the countrymarket

• Industry structure and nature of rivals

• Urgency of entry



Selection Criteria for Entry ModeChoice

• Prior company experience• Level, time and cost of local adaptation

• Availability of local partners

• Uniqueness of the Business model

• Need and ease of transferring corecompetence

• Desire or need for control

• Uniqueness of corporate culture



Case For Greater Reliance on Local

Production

Size Of Local Market > Minimum Efficient Scale of Production

High Shipping and Tariff costs (exporting)

High Local Customisation Requirements

Strong Local Content Requirements



Case For Alliance (including JV)

based Entry Mode

High Physical, Linguistic and Cultural Distance

Low Operational Integration

Risk of Asymmetric Learning is low

Shortage of Capital

Govt. regulations require Local Equity participation



Greenfield vs. Cross – border Acquisition

Greenfield Greenfield

Operations or operations

Cross border

acquisitions

Cross border Greenfield

acquisitions Operations or

Cross borderacquisitions

Low High

Uniqueness of Corporate Culture

High

Low

Market Growth

Rate



Timing of Entry• Tradeoff between moving early and

lateBefore / after demand is established

Before / after competitors enter

Before / after uncertainties areresolved

EARLY LATEFAVOURED WHEN:

First mover advantage Rapid/easy imitation

Flexible adaptation Ambiguity

Certainty Rigidity/ Inertia



Accelerated Speed is appropriate if:

Competitors are entering or have entered

Easy for Competitors to replicate Success

Global customers are already present

Good local partners / resources are limited

Regulatory and cultural barriers are low

Can secure government approval in preferential terms

Management’s capacity to manage expansion is high

Possibility of brand building at a low cost

Speed of Market Entry



Winning The Local Battle•Understand the uniqueness of the market and

strategize accordingly – rather over deliver thanunder-deliver

•Winning Host Country Customers – STP, 4P’s, SCM,

CRM

•Winning against Host country CompetitorsAcquire a weak player

Enter a poorly defended niche

Frontal attack

•Managing relationships with the Host country Govt.•Adopt a “fair” business model



Transplanting The Corporate DNA

Clarifying and Defining Core Beliefs and Practices

Transplanting Core Beliefs and Practices

Embedding Core Beliefs and Practices

Fusion with Local Culture



Four Basic Strategies

High

Costpressures

Low

Low High

GlobalStandardization

Strategy

TransnationalStrategy

Multi-domesticStrategy

ExportStrategy

Pressures for local responsiveness



Export Strategy• Exploit a unique country factor

advantage– minerals, raw material commodities

– unique factor

• Companies sell “the factor” towhoever desires it worldwide– limited presence outside the home

countryExample: Iron Ore , Wheat, Chinese toys

FACTOR ADVANTAGE



Global Strategy• Pure global strategy

– one standard product

– sold the same way around the world

– exploiting scale economies in shared activities

– appealing to a universal global customer

Example: Shipbuilding, Aircraft, Microprocessor, Rolexwatches

GLOBAL EFFICIENCY AND SIMPLICITY

M lti d sti St t



Multi-domestic StrategyA presence around the world, each country

pursuing its own strategy transferring skills from the home country• product development, marketing

• replicating activities

choosing among and adapting strategies to local market Limited interdependencies leave each country to

stand on its own autonomy

portfolio of individual country positionsExample: Industrial Gases, Cookies/Biscuits, paints,banking, specialty restaurants

TRANSFER KNOW-HOW

LOCAL RESPONSIVENESS



Transnational Strategy A coordinated, but dispersed worldwide presence

locally responsive and globally efficient

transferring skills and sharing activities whereeconomic

exploiting its worldwide flexibility and insider status• learning/sensing

• option value E.g.: Automobile, Turbine, fast food,management consulting

Coordination becomes the competitive advantage Management becomes the challenge

COORDINATED GLOBAL NETWORK

TRANSCEND THE TRADEOFF



Which Strategy?

• How similar is the “business system”around the world?

Similarities Differences

•Customer taste•Culture•Distribution channels•Media

•Logistics infrastructure•Rules and regulation•Raw materials•Related and supported industries





Choice of International Strategy

• Never black and white

• Varies by industry and segment

• Varies over time• Normally occurs first within regions– Triad

• Ultimately is a firm’s strategic choice

oice o nternationa trategy:



oice o nternationa trategy:Process Flow

Industry Analysis

- structure

- international economics

+

Strategic Analysis

- generic strategy

- international strategy

WHAT COMPETITIVE ADVANTAGE

HOW TO

ORGANIZE

WHERE TO

LOCATE

WHERE TO

COMPETE

WHICH

PRODUCT



Task of Global Integration

LocalResponsiveness

Source: Bartlett and Ghoshal

Global Efficiency

International

Learning

From the EITHER-ORPendulum to AND-ANDSolutions: How can we provide thenecessary integration to units(Business/subsidiaries/ functions)that Need their owndecentralized identities?

centralization, headquarters)

Decentralization subsidiaries



Global Integration

• Ideally manage through a combination oforganisational design toolsHard

• Structure– Formal allocation of decision rights / Roles and

responsibilities• Systems

– Horizontal mechanisms / Coordination

• Processes – Formal and Informal

Soft• Purpose

– Strategic intent / Values

• People– Human resources / Socialisation - grooming

I i l Di i i S



DomesticDivisionGeneralManager

Product line A

InternationalDivisionGeneralManagerarea line

Headquarters


Product line B


Product line C

Country 1GeneralManager

(product A, B,and / or C)

Country 2GeneralManager

(product A, B,and / or C)

Functional units

Functional units

International Division Structure(initial expansion abroad)

44



Europeanarea

Middle East /

Africa area

Far Eastarea

Headquarters

North Americanarea

Latin Americanarea

Worldwide Area Structure (more internationalexpansion-firms without diverse product lines)

W ld id P d t Di i i St t



Worldwideproduct groupor division A

Worldwideproduct groupor division C

Headquarters

Worldwideproduct groupor division B

Area 1

(domestic)

Area 2

(international)

Functional units

Worldwide Product Division Structure(more international expansion – firms with diverse

product lines)



Transnational MNC



Transnational MNC

UK Chile

IndiaJapan

USA

Networked Organization - Distributed, specialized resources andcapabilities

Interdependent Units - large flows of components, products,

resources, people, and information

Transnational Mentality - Complex process of coordination and

cooperation in an environment of shared

decision making

HK

Mexico

48



The Global Manager• Ability to build alliances and business partnerships

• Entrepreneurial and initiative taker• Flexible & responsive

– Different markets, different needs

• Networking

• Managing Personal Growth

• Cross cultural Intelligence & Communication

• Dealing with Culture Shock - Frustration due to thechallenge of coping with new cultural cues and expectations

• Managing cultural diversity– Be sensitive to others while being grounded in own

culture

– Managing conflicts arising out of cultural diversity



Months Living in New Culture1 2 3 4 5 6

A c

c e p t a n c e o f N e w

C u l t u r e

High

Low

Frustration

Understanding

Elation

Stages of Culture Shock

St t i s f D li ith C lt l



Strategies for Dealing with CulturalDifferences

Making little or no adjustment• Host cultures do not always expect foreigners to adjust

to them

• Less adjustment necessary when moving to a countrywith a similar culture

CommunicationsSpoken and written language

• Difficult to directly translate one language into another

Silent language

• Color associations, sense of appropriate distance, timeand status cues, and body language

B i L d f th C t



Business Leaders of the ContemporaryWorld Need to Have Global Mindset

• “The Jack Welch of the future cannot be me. Ispent my entire career in the United States. Thenext head of General Electric will be somebody

who spent time in Bombay, in Hong Kong, in BuenosAires. We have to send our best and brightestoverseas and make sure they have the trainingthat will allow them to be the global leaders whowill make GE flourish in the future .”

- Jack Welch, Former CEO, GE

Leaders & Managers with Global Mindset



sychologicalCapital

What isthe game

Individualswho are

capable ofperceiving,analyzing

anddecodingthe globaloperating

environment

IntellectualCapital

Individualswho have a

globalmindset

GlobalLeaderswho areeffective

in

influencingpeoplefrom

differentsocio-cultural

systems

What arethe rules

How do

we win?

GlobalCorporations

that aresuccessful

in their different

global

markets

B e h a v i o r a l

R e p e r t o i r e

SocialCapital

Individuals whocan identify

effectivemanagerial action

in the global

operatingenvironment

Individualswho possess

thebehavioral

flexibilityand

discipline toact

appropriately

g



“In every community, we must remember

that we do not do business in markets….

……We do business in societies”.



Thank You and Wish you the verybest in life!!!

Documents

IBM End Course Review