Management 448 Slides

7/29/2019 Management 448 Slides

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MGT/448 2008

MGT448


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Global Business Strategies

Weekly Themes

Contemporary Global Business Environment

Global Business Strategy FormulationStrategic Implementation:

Global Business Operations

Strategy Implementation:

Finance & Marketing in Global BusinessChanging Environment of

Global Business


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Global Business Strategies

Week Two:

Global Business Strategy Formulation


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Theory of Foreign Direct Investment (FDI)

Modes of Entry (1)

Export/Import

Indirect export a manufacturer sells its products to

consumers in another country, working through

independent international intermediaries. If the

manufacturer has shares in one or several

intermediaries, then this can be regarded as FDI.

Direct export a firm sells its products to consumers

in another country by fulfilling its own sales contracts

in the host country. This is usually classified as trade

not FDI.


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Modes of Entry (2)

Licensing

A firm licenses the right to produce its product, the

use of its production process, or the use of its brand

name or trademark to a foreign firm.

Franchising

A specialized form of licensing in which the franchisersells intangible property to the franchisee and insists

on rules to conduct the business.


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Modes of Entry (3)

Management contracts

The export company usually provides the

management team and technology, while the host

country firm provides the capital (money, facilities,

labor, etc.).

Contract Manufacturing A foreign producer makes products in the host

country for the host country market.


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Modes of Entry (4)

Joint ventures (mergers and acquisitions)

A cooperative undertaking between two or more firms

in which they share ownership and control.

Strategic alliances (mergers and acquisitions)

A cooperative agreement between actual or potential

competitors that can run the range from formal jointventures to short term contractual agreements.


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Modes of Entry (5)

Turnkey operations

A cooperative agreement in which a firm agrees to set

up an operating plant for a foreign client and hand

over the key when the plant is fully operational.

Wholly owned subsidiaries (green field FDI)

The exporting firm enters the foreign market bydeveloping foreign-based assembly, manufacturing,

or distribution facilities.

This is a narrow definition of FDI.


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Decision Framework

How high are

transportation costs and

tariffs?

Is know-how amenable to

licensing?

Is tight control over foreign

operation required?

Can know-how be protected

by licensing contract?

Then license

Export

No

Yes

Yes

Low

No

Yes

No

FDI

FDI

FDI

High


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Theory of Foreign Direct Investment (FDI)Forms of FDI Horizontal direct investment

FDI in the same industry abroad as companyoperates at home.

Vertical direct investment Backward - investments into industry that provides

inputs into a firms domestic production (typically

extractive industries/production) Forward - investment in an industry that utilizes the

outputs from a firms domestic production (typicallysales and distribution)


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Business Risk Analysis (1)

Country & business risk analysis

STP (Segmentation, Targeting, Positioning) factors

analysis related to country

SWOTT analysis (Strengths, Weaknesses,

Opportunities, Threats, and Trends)

Initial screening:

Basic need and/or potential for foreign trade orinvestment

Possible modes of entry

Possible forms of FDI if FDI is chosen


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Second screening: economic & financial forces

Economic indicators (GDP, growth rate, inflation,

interest rate, unemployment rate, etc.)

Exchange rate controls

Currency convertibility

Capital mobility

Trade barriers Balance of payments

Budget deficits


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Third screening: political & legal forces

Entry barriers

Profit remittance barriers

Business law

Political stability

Other possible barriers


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Fourth screening: socio-cultural forces

Demographics

Cultural/Communication

Religious

Educational

Health/Labor

Fifth screening: competitive forces Number, size, and financial strength

Market share


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Global Strategic Planning Process

Analyze external global environment

Define corporate vision/mission

Set corporate objectives

Quantify objectives

Formulate corporate strategies

Implement/execute strategic plan Control and evaluation

Devise contingency plan


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Mission Statements

Define our business & who we are

Identification of stakeholders & their claims

Labor

Customers

Suppliers

Stockholders/Shareholders

Management Community

Needs to go global to address the above

targets and interests


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Stages of Economic Development

Traditional

Pre-Conditions for growth

Take-Off

Drive to Maturity

Age of Mass Consumption

Documents

Management 448 Slides