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Going global: Internationalization strategies
Robin TeiglandStockholm School of Economics
robin.teigland@hhs.sewww.knowledgenetworking.orgwww.slideshare.net/eteigland
April 2008
What is globalization?
A process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions – assessed in
terms of their extensity, intensity, velocity, and impact – generating transcontinental or
interregional flows and networks of activity, interaction, and the exercise of power
Held et al, 2003
Why globalization? The information age in which we live
allows both large and small businesses to thrive on a global
scale. Technologies like the internet, mobile phones, etc. have made our
shrinking world even smaller.
Kingsley 2005
Global supply chains - Dell
Susanto
Surrounding every Dell factory are supplier logistic centers owned by the different suppliers of Dell parts -
Friedman 2005
International production network – Boeing 787
Networked internationalization is at the core of the production process - Castells 2000
Patterns of internationalization
Trading Global industries industries --aerospace --automobiles --military hardware --oil --diamond mining --semiconductors --agriculture --consumer electronics
Domestic Multidomestic industries industries --railroads --laundries/dry cleaning --retail banking --hairdressing --hotels --milk --consulting
Internationaltrade
Foreign direct investment
LOW
LOW
HIGH
HIGH
Grant 2007
WHY?
Ask yourself four basic questions
HOW?BRING?
WHERE?
You are listening to WWBH, Kiss FM!
Adapted from Sölvell
Internationalization framework INDUSTRY ENVIRONMENT
•Rivalry among firms•Barriers to entry•Bargaining power of suppliers•Bargaining power of buyers•Substitute products/services
FIRM RESOURCES & CAPABILITIES
• Financial resources• Physical resources• Technology• Reputation• Functional capabilities• General management capabilities
NATIONAL ENVIRONMENT• Political environment• Economic environment• Social environment• Technological environment • Environmental environment • Legal environment• National culture• Cluster conditions
WWBH
WHY?
Ask yourself four basic questions
HOW?BRING?
WHERE?
You are listening to WWBH, Kiss FM!
Adapted from Sölvell
Why internationalize? To build global efficiency
Benefiting from differences in factor costs – wages, cost of capital Expanding and exploiting potential scale economies - manufacturing,
R&D, sales & marketing Sharing of investments and costs across markets and businesses
To manage risks through multinational flexibility Different kinds of risks arising from market- or policy-induced changes in
comparative advantages of different countries Portfolio diversification of risks and creation of options and side bets
To facilitate innovation and learning Tapping into a skill base, eg. technological, organizational, managerial Benefiting from experience – cost reduction and innovation Synergies and shared learning across different products, markets, or
businesses Other
Following global customers Building reputation, changing identity Adapted from Grant 2007
Forces for worldwide innovation and learning
Increasing pace of technology development Shortening product life-cycles Rising R&D costs Increasing number of multinationals with
capability to develop and diffuse innovation globally
2-11
Increasing need to develop worldwide organization as a learning system
Innovative capability as emerging source of competitive advantage
Adapted from Grant 2007
13
Did You Know: Shift Happenshttp://www.youtube.com/watch?v=pMcfrLYDm2U
Which globalization forces are presented?
But….
Not every firm is ready to internationalize Prematurely venturing outside borders may
harm overall firm performance, especially for smaller firms with small margin for error
• Long-term investment
• High ambitions - risk
• Commitment - exit barriers
Adapted from Sölvell
WHY?
Ask yourself four basic questions
HOW?BRING?
WHERE?
You are listening to WWBH, Kiss FM!
Adapted from Sölvell
Internationalization framework INDUSTRY ENVIRONMENT
•Rivalry among firms•Barriers to entry•Bargaining power of suppliers•Bargaining power of buyers•Substitute products/services
FIRM RESOURCES & CAPABILITIES
• Financial resources• Physical resources• Technology• Reputation• Functional capabilities• General management capabilities
NATIONAL ENVIRONMENT• Political environment• Economic environment• Social environment• Technological environment • Environmental environment • Legal environment• National culture• Cluster conditions
WWBH
18
PESTEL – What characterizes the national environment?
Johnson & Scholes 1997
Political
Environmental Technological
Legal Social
Economic
Nationalenvironment
19
1. Which of these are the most important at the present time?2. Which of these will be the most important in the next few years?
Political Global, regional, and national
political development (administration, political parties)
Taxation policy Foreign trade regulations Labour market politics Government stability Terrorism
Social Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Attitudes to consumerism Levels of education Changes in values/attitudes Education conditions Work environment conditions Health conditions
Environmental Ecology Pollution conditions ”Green” energy Energy conservation Waste handling
Economic Business cycles GNP trends Interest rates & exchange rates Money supply Inflation Unemployment Wage level Private consumption and disposable
income Public finances Energy availability and cost
Technological Government spending on research Government and industry focus of
technological effort New discoveries/development Speed of technology transfer Rates of obsolescence New patents and products
Legal Development in price and
competitive legislation Labour market legislation Product safety and approvals
How far is the distance from the home country?
Cultural distance Difference between two cultures along some
identifiable dimensions, eg such as power distance
Institutional distance Extent of similarity or dissimilarity between
regulatory, normative, and cognitive institutions of two countries
Grant 2007
Five dimensions of national culture Differences in national culture found to result in different organizational and administrative practices and employee expectations (Kogut & Singh 1988, Zander 1997, Straub 1994)
1. Power distance Degree that less powerful members of organizations and institutions accept
and expect that power is distributed unequally 2. Individualism
Degree that individuals are integrated into strong cohesive groups3. Masculinity
Degree that values are characterized by assertiveness and competitiveness vs modesty and caring
4. Uncertainty avoidance Degree that individuals feel comfortable with ambiguity, uncertainty,
unstructured situations5. Long-term orientation
– Degree that individuals deal with virtue regardless of truth (thrift and perseverance) vs tradition, fulfilling social obligations, and protecting “face”
Hofstede 1980, 2003
Three pillars of institutional profile Differences in institutional profile found to result in adoption of different organizational and administrative practices (Kostova & Roth 2002, Busenitz et al. 2000)
1. Regulatory Government policies and legal system
2. Normative Value systems
3. Cognitive Widely shared social knowledge
Note: Cross-cultural management researchers are divided as to whether national culture and institutional profile are distinct.
Scott 1995
A high-technology cluster in Israel Recognized as excellent source of technology innovation Largest concentration of high-tech companies outside US Created category leaders in various industries Tremendous concentration of global technology leaders
Haan
After this preliminary screening…
Which foreign markets warrant further detailed
investigation?
Internationalization framework INDUSTRY ENVIRONMENT
•Rivalry among firms•Barriers to entry•Bargaining power of suppliers•Bargaining power of buyers•Substitute products/services
FIRM RESOURCES & CAPABILITIES
• Financial resources• Physical resources• Technology• Reputation• Functional capabilities• General management capabilities
NATIONAL ENVIRONMENT• Political environment• Economic environment• Social environment• Technological environment • Environmental environment • Legal environment• National culture• Cluster conditions
WWBH
32
Industry definition
A group of firms producing products that are close
substitutes for each other
Porter
34
Five forces of competitionSUPPLIERS
POTENTIALENTRANTS SUBSTITUTES
BUYERS
INDUSTRYCOMPETITORS
Rivalry amongexisting firms
Bargaining power of suppliers
Bargaining power of buyers
Threat of
new entrants
Threat of
substitutes
Porter
35
Rivalry between established competitors
Numerous or equally balanced competitors
Slow industry growth High fixed costs Lack of differentiation or
switching costs Capacity augmented in large
increments High strategic stakes High exit barriers
What makes competitors
“fight” harder?
Porter
36
Bargaining power of buyers
Buyer’s price sensitivity Relative bargaining power• What is cost of product as % of buyer’s total costs?• How differentiated is the purchased item? • How intense is competition between buyers? • How important is the item to quality of the buyer’s own output?
•What are size and concentration of buyers relative to sellers?•What are buyer’s switching costs?•What is buyer’s information?•What is ability to backward integrate?
Porter
Who decides the price?
37
Bargaining power of suppliers
Supplier’s price sensitivity Relative bargaining power•What is cost of supplies as % of total supplier’s sales?•How differentiated is the supplied item?•How intense is competition between suppliers?
•What are size and concentration of sellers relative to buyers?•What is supplier’s information?•What is supplier’s ability to forward integrate?
Porter
Who decides the price?
38
Threat of substitutesExistence of substitutes places ceiling on prices that can be charged
•Same function•Train/plane/car/ICT
•Better price-performance•Books/videos•Record-players/CD-players•Security guards / electronic alarm systems
Point A ?
Porter
How “easy” is it to switch? Point B
39
Threat of new entrants High capital requirements High economies of scale Strong customer loyalties High switching costs High product differentiation Limited access to
distribution channels High legal/regulatory
barriers Large cost disadvantages
independent of scale Ex. Proprietary technology, raw
materials, location, learning curve, government subsidies
Strong retaliation by industry participants
What keeps new competitors out - barriers to entry?
Porter
WHY?
Ask yourself four basic questions
HOW?BRING?
WHERE?
You are listening to WWBH, Kiss FM!
Adapted from Sölvell
Internationalization framework INDUSTRY ENVIRONMENT
•Rivalry among firms•Barriers to entry•Bargaining power of suppliers•Bargaining power of buyers•Substitute products/services
FIRM RESOURCES & CAPABILITIES
• Financial resources• Physical resources• Technology• Reputation• Functional capabilities• General management capabilities
NATIONAL ENVIRONMENT• Political environment• Economic environment• Social environment• Technological environment • Environmental environment • Legal environment• National culture• Cluster conditions
WWBH
43
RESOURCESTANGIBLE INTANGIBLE HUMAN
•Financial•Physical
What do you bring?
ManagementSystems
OrganizationStructure
ORGANIZATIONAL CAPABILITIES
•Skills/know-how•Capacity for communication & collaboration•Motivation
•Technology•Reputation•Culture
Grant 2007
44
Functional classification of organizational capabilities
FUNCTION CAPABILITY EXAMPLESCorporate Financial management ExxonMobil, GEmanagement Strategic control IBM, Samsung
Coordinating business units BP, P&GManaging acquisitions Citigroup, Cisco
MIS Speed and responsiveness through Wal-Mart, Dell, rapid information transfer Capital One
R&D Research capability Merck, IBMDevelopment of innovative new products Apple, 3M
Manufacturing Efficient volume manufacturing Briggs & StrattonContinuous Improvement Nucor, Harley-DFlexibility Zara, Four Seasons
Design Design capability Apple, Nokia
Marketing Brand management P&G, LVMH, CokeQuality reputation Johnson & JohnsonResponsiveness to market trends MTV, L’Oreal
Sales, distribution Sales responsiveness PepsiCo, Pfizer& service Efficiency and speed of distribution LL Bean, Dell
Customer Service Singapore AirlinesCaterpillar
Grant 2007
How well can you sustain your advantage?
Scarcity: How scarce are your resources?
Imitability: How easy is it to imitate your resources and capabilities?
Bundled: How easy is it to identify your resources and capabilities?
Adapted from Grant 2007
WHY?
Ask yourself four basic questions
HOW?BRING?
WHERE?
You are listening to WWBH, Kiss FM!
Adapted from Sölvell
Modes of entry choice Exporting
Direct or indirect sales of services or products in foreign market from home market.
Licensing Arrangement where firm (licensor) grants to independent foreign firm
(licensee) rights of intangible assets (patents, trade secrets, know-how, trade marks, or company name) to produce firm's product or service in their country for negotiated fee - normally royalty payments on number of units sold.
Franchising Specialized form of licensing in which firm (franchisor) licenses business
system as well as other property rights to franchisee. Franchisor licenses way of organizing and conducting a business under its trade name and in return, the franchisor receives fees, running royalties, and other compensations from franchisee.
Turnkey Firm agrees to handle every detail of project for foreign client, including
training of personnel, and at completion “hands over key” to foreign client. Joint venture
International firm shares in ownership of an enterprise in target country. Most commonly, international firm agrees to share capital and other resources with another local firm.
Wholly owned subsidiary Firm acquires 100 percent of firm or sets up own through greenfield.
Hill 2000
A hierarchical model of entry choice modes
Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535–554.
Commitment
Criteria for selecting entry mode Trade-off of four critical variables
1. Control - Ability to influence systems, methods, and decisions in operation of target market
2. Transfer risk - Possibility that firm specific advantages in know-how will be expropriated
3. Resource intensity (cost) - Amount of dedicated assets, eg management, marketing, provision of technical support, and human resources
4. Learning - Ability to gain foreign market knowledge, eg customer preferences, techniques of foreign operation, ways of doing business, legal rules, etc.
Delfman Delfmann
Entry Mode Advantage Disadvantage
Exporting Ability to realize location andexperience curve economies
High transport costsTrade barriersProblems with local marketing agents
Turnkeycontracts
Ability to earn returns fromprocess technology skills incountries where FDI isrestricted
Creating efficient competitorsLack of long-term market presence
Licensing Low development costs andrisks
Lack of control over technologyInability to realize location and
experience curve economiesInability to engage in global strategic
coordination
Advantages & disadvantages of entry modes
Hill 2000
Advantages & disadvantages of entry modes
Entry Mode Advantage Disadvantage
Franchising Low development costs andrisks
Lack of control over qualityInability to engage in global strategic
coordination
Jointventures
Access to local partner’sknowledge
Sharing development costs andrisks
Politically acceptable
Lack of control over technologyInability to engage in global strategic
coordinationInability to realize location and
experience economies
Whollyownedsubsidiaries
Protection of technologyAbility to engage in global
strategic coordinationAbility to realize location and
experience economies
High costs and risks
Hill 2000
Strategic alliances growing in importance Cooperative agreement involving mutual dependence
and shared decision making between potential or actual competing organizations
Multiple forms including JVs, R&D collaborations, piggy backing, sourcing relationships, etc.
Differ from traditional JVs Increasingly between firms in industrialized nations Focus on creation of new products and technologies rather
than distribution of existing ones Reasons
Rising R&D costs Shortening product life cycles Growing market entry barriers Increasing need for global scale economies Expanding importance of global standards Uncertainty in technological developments
GEB 6365
SUZUKI
ISUZU
TOYOTA
IBC VehiclesLtd. (U.K.)
GM
New United MotorManufacturingInc. (NUMMI)
10% owned. Co-production
49%owned. Co-production
40% investment
60%owned
50% owned
50%owned
(Makes vans in UK)
(Makes cars in US)
SAAB
50%owned
FIAT20% owned (2000-5).
Collaboration on technology
and components
FUJI20% owned; joint production
DAEWOO
50.9% owned; technical &
production collaborationAVTOVAZ Russian JV to produce cars
SAIC
JV to produce cars in China
General Motors’ alliances with competitors
Grant 2007
Dynamics of internationalizationOngoing
assessment of trade-offs and resources and
capabilities
Ongoing evaluation of national and
industry environments
Decision to increase
internationalization involvement
Typical internationalization process
1. Sporadic exporting in response to unsolicited requests
2. Systematic exporting3. Licensing to a foreign company4. Strategic alliances5. Establishing a wholly owned sales subsidiary6. Acquiring existing foreign operations7. Establishing foreign manufacturing and/or R&D
Fey 2008
Internationalization framework INDUSTRY ENVIRONMENT
•Rivalry among firms•Barriers to entry•Bargaining power of suppliers•Bargaining power of buyers•Substitute products/services
FIRM RESOURCES & CAPABILITIES
• Financial resources• Physical resources• Technology• Reputation• Functional capabilities• General management capabilities
NATIONAL ENVIRONMENT• Political environment• Economic environment• Social environment• Technological environment • Environmental environment • Legal environment• National culture• Cluster conditions
WWBH
W W B H
Often forgottenImplicitChanged logic over time
Often overstated
Focus often put here
Often forced trial-and-errorDon´t forget 5 forces analysis!
Lessons
Adapted from Sölvell
Activio (www.activio.se) Vision
To stimulate and improve physical activity and in the long term contribute to an increased wellbeing of today’s society
Business Develops, manufactures, and markets heart-rate
measurement systems for sports and health industry Systems in fitness centers, schools, professional sports clubs
(eg Real Madrid and FC Barcelona) Organization
Founded 2004 Competencies
Health and fitness, physiology, technology Home country Sweden In use in
Sweden, Norway, Denmark, Finland United Kingdom, Netherlands, Spain, Slovenia Turkey, Dubai
71
Exercise – Help Activio internationalize
You are consultants to Activio (www.activio.se)
In pairs, develop preliminary recommendations for Activio’s management
Should Activio enter India? And if so, how?
Internationalization framework INDUSTRY ENVIRONMENT
•Rivalry among firms•Barriers to entry•Bargaining power of suppliers•Bargaining power of buyers•Substitute products/services
FIRM RESOURCES & CAPABILITIES
• Financial resources• Physical resources• Technology• Reputation• Functional capabilities• General management capabilities
NATIONAL ENVIRONMENT• Political environment• Economic environment• Social environment• Technological environment • Environmental environment • Legal environment• National culture• Cluster conditions
WWBH
Second Life – one example of a virtual world
Film by Duke CE
http://www.youtube.com/watch?v=Bi5i3UwVvbg
Teigland 2008
Why should we be interested?Second Life as an example (March 2008):~50,000 people online at any one time~1,350,000 people logged on during past 60
days~1,500,000 USD spent every day on virtual
goods and services>Numerous multinationals going virtual
Teigland 2008
..and even tomorrow’s solutions
Building the house of Building the house of the futurethe futurein an HSB in an HSB
competitioncompetitionTeigland 2008
Improving national competitiveness
•China’s “virtual world where millions will work, communicate, and be in love”
•7 mln local + 150 mln overseas Chinese
•Five virtual banking licenses auctioned for $404,000 May 2007
Financial Times, June 2007 Teigland 2008
Sources Ahlstrom, D. & Cook, C., Global Strategy: Entering Foreign Markets, South-
Western, 2005. Burke, Chapter 12: Entering Foreign Markets. Chapter 3: Developing Strategic Capabilities, McGraw-Hill. Delfmann, W. Boundaries of International Business Activities, University of
Cologne. Fey, C. International Business, Stockholm School of Economics, 2008. GEB 6365 - INTERNATIONAL BUSINESS, EXECUTIVE MBA, The
Internationalization Process & Market Entry Strategies, 2006. Gemcom, Triumphs & Tragedies in International Business, WAGON
Conference, Perth April 2008. Grant, R. Contemporary Strategy Analysis, Blackwell, 2007. McGee, J., Thomas, H. & Wilson, D. Strategy: Analysis and Practice,
McGraw-Hill, 2005. Porter, ME. Competitive Strategy, Free Press, 1980. Porter, ME. What is Strategy? HBR, Nov-Dec, 1996. Sölvell, Ö. The Radio Model, Stockholm School of Economics, 2007. Teigland, R., Fad or Future: What do virtual worlds have to offer?,
www.slideshare.net/eteigland/, 2008.
Thanks and see you in world!
Karinda Rhode
aka Robin [email protected]
www.knowledgenetworking.org
www.slideshare.net/eteigland
Measurement
THE INTERNATIONAL MARKETING RESEARCH PROCESS
FIRM OBJECTIVE
INFORMATION REQUIREMENT
PROBLEM DEFINITION
CHOOSE UNIT OF ANALYSIS
EXAMINE DATA AVAILABILTY Can Secondary Data be Used?
ASSESS VALUE OF RESEARCH
RESEARCH DESIGN
DATA ANALYSIS
INTERPRETATION/ PRESENTATION
Firm’s Needs
Market Orientation
Strategic Orientation
Problem Orientation
Self Reference Criterion
Country
Region
Global
Subgroup/Segments Within Countries
Cost/ Benefit Analysis
Causal
Descriptive
Exploratory
Data Preparation
Data Manipulation
T-tests & Cross TAbs
Experimental Design & ANOVA
Multivariate Techniques
Advantages / Disadavantages of Secondary Research
Sources of Secondary Data
Types of Problems That CAn be Solved Using Secondary Data
Frequency & Ease of Use
Issues inPrimary Data Collection
Qualitative Methodsi
Surveys
Instrument Design
Scale Development
Sampling
Types
Sources of Bias
Country/ Regional Specific Bias
Equivalence
Coding
Wording
Format
Construct
Sampling
Analysis
Yes
No
GEB 6365
