MM 5012 BUSINESS STRATEGY Summary Week 7

Oleh Joseph Enrico (29111349)

MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2013

School of Business & Management Institut Teknologi Bandung

Assignment Cover Sheet for Students

An assignment cover sheet needs to be included with each assignment. Please complete all detail clearly. If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a separate attachment.) The submission method should be done according to the instructors instructions. Name Joseph Enrico Student ID 29111349 Course code and title Business Strategy Course time and place Lecturer Harimukti Wandebori, ST, MBA Due date 13/03/2013 Assignment number Assignment title/topic/case Assignment type (choose one) ( ) Midterm Exam ( ( ( ) Final Exam ) Group Assignment ) Other ( X ) Individual Assignment Program MBA ITB Mobile phone 081322122116

Further information (e.g. state if extension was granted and attach evidence of approval, revised submission date)

I declare that the work contained in this assignment is my own, except where acknowledgement of source is made. I authorize SBM ITB to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand that this will involve the SBM ITB or its contractor copying my work and storing it on a database to be used in future test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will deemed to have the same authority as a signed statement.

Signed Filled out by lecturer/tutor Date received from student Recorded

Date

Assessment/grade Dispatched (if applicable)

Assessed by

Chapter 8 Identifying International Opportunities: Incentives to Use an International Strategy

An international strategy is a strategy through which the firm sells its goods or services outside its domestic market. One of the primary reasons for implementing an international strategy (as opposed to a strategy focused on the domestic market) is that international markets yield potential new opportunities. Employment contracts and labor forces differ significantly in international markets. When these strategies are successful, firms can derive four basic benefits: (1) increased market size; (2) greater returns on major capital investments or on investments in new products and processes; (3) greater economies of scale, scope, or learning; and (4) a competitive advantage through location (e.g., access to low-cost labor, critical resources, or customers). Firms can expand the size of their potential marketsometimes dramaticallyby moving into international markets. The size of an international market also affects a firms willingness to invest in R&D to build competitive advantages in that market. Larger markets usually offer higher potential returns and thus pose less risk for a firms investments. By expanding their markets, firms may be able to enjoy economies of scale, particularly in their manufacturing operations. Economies of scale are critical in the global auto industry. Firms may also be able to exploit core competencies in international markets through resource and knowledge sharing between units and network partners across country borders. This sharing generates synergy, which helps the firm produce higher-quality goods or services at lower cost. Firms may locate facilities in other countries to lower the basic costs of the goods or services they provide.

International Strategies
Firms choose to use one or both of two basic types of international strategies: businesslevel international strategy and corporate-level international strategy. At the business level, firms follow generic strategies: cost leadership, differentiation, focused cost leadership, focused differentiation, or integrated cost leadership/differentiation. The three corporate-level international strategies are multidomestic, global, or transnational (a combination of multidomestic and global). A multidomestic strategy is an international strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country so as to allow that unit to tailor products to the local market. It is focus on competition within each country. The use of multidomestic strategies usually expands the firms local market share because the firm can pay attention to the needs of the local clientele. Global strategy assumes more standardization of products across country markets. As a result, a global strategy is centralized and controlled by the home office. The firm uses a global strategy to offer standardized products across country markets, with competitive strategy being dictated by the home office. A transnational strategy is an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness.

Environmental Trends.
Two important trends are the liability of foreignness, which has increased since the terrorist attacks and the war in Iraq, and regionalization. Research shows that global strategies are not as prevalent as they once were and are still difficult to implement, even when using Internetbased strategies. Regionalization is a trend that has become more common in global markets. Because a firms location can affect its strategic competitiveness, it must decide whether to compete in all or many global markets, or to focus on a particular region or regions. Most firms enter regional markets sequentially, beginning in markets with which they are more familiar. They also introduce their largest and strongest lines of business into these markets first, followed by their other lines of business once the first lines achieve success.

Choice of International Entry Mode

International expansion is accomplished by exporting products, participating in licensing arrangements, forming strategic alliances, making acquisitions, and establishing new wholly owned subsidiaries. Many industrial firms begin their international expansion by exporting goods or services to other countries. The disadvantages of exporting include the often-high costs of transportation and tariffs placed on some incoming goods. Firms export mostly to countries that are closest to their facilities because of the lower transportation costs and the usually greater similarity between geographic neighbors. Licensing is an increasingly common form of organizational network, particularly among smaller firms. A licensing arrangement allows a foreign company to purchase the right to manufacture and sell the firms products within a host country or set of countries. Licensing is also a way to expand returns based on prior innovations. Even if product life cycles are short, licensing may be a useful tool. In addition, licensing provides the least potential returns, because returns must be shared between the licensor and the licensee. Strategic alliances allow firms to share the risks and the resources required to enter international markets. Moreover, strategic alliances can facilitate the development of new core competencies that contribute to the firms future strategic competitiveness. Each partner in an alliance brings knowledge or resources to the partnership. Indeed, partners often enter an alliance with the purpose of learning new capabilities. Acquisitions can provide quick access to a new market. In fact, acquisitions often provide the fastest and the largest initial international expansion of any of the alternatives. The establishment of a new wholly owned subsidiary is referred to as a greenfield venture. The process of creating such ventures is often complex and potentially costly, but it affords maximum control to the firm and has the most potential to provide above-average returns. The risks are also high, however, because of the costs of establishing a new business operation in a new country. Initially, market entry is often achieved through export, which requires no foreign manufacturing expertise and investment only in distribution. Licensing can facilitate the product improvements necessary to enter foreign markets

Strategic Competitive Outcomes

International diversification is a strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets. International diversification provides the potential for firms to achieve greater returns on their innovations (through larger or more numerous markets) and reduces the often substantial risks of R&D investments. Although firms can realize many benefits by implementing an international strategy, doing so is complex and can produce greater uncertainty. Other complexities include the highly competitive nature of global markets, multiple cultural environments, potentially rapid shifts in the value of different currencies, and the instability of some national governments.

Risks in an International Environment

Political risks are risks related to instability in national governments and to war, both civil and international. Instability in a national government creates numerous problems, including economic risks and uncertainty created by government regulation. Another economic risk is the perceived security risk of a foreign firm acquiring firms that have key natural resources or firms that may be considered strategic in regard to intellectual property. Several reasons explain the limits to the positive effects of international diversification. First, greater geographic dispersion across country borders increases the costs of coordination between units and the distribution of products. Second, trade barriers, logistical costs, cultural diversity, and other differences by country (e.g., access to raw materials and different employee skill levels) greatly complicate the implementation of an international diversification strategy. Institutional and cultural factors can present strong barriers to the transfer of a firms competitive advantages from one country to another

RM 10 The International Competitiveness of Asian firms

The focus of this paper is an empirical analysis of the international competitiveness of the largest firms on Asia. The propose in this paper that the international competitiveness of nations depends on the success of its largest firms. Subsequent work on international competitiveness has also used country level data but has moved beyond trade data to include shares of foreign direct investment. Furthermore, the original porter diamond framework which included factor conditions, demand conditions, domestic rivalry, and the related and supporting industries in an interdependent system. While the porter single diamond works reasonably well to explain the competitiveness of large countries like USA and Japan, the double diamond framework is necessary to analyze the competitiveness of smaller countries such as Canada, Korea, Australia, etc. In term of international business, this was a troublesome development. These were efficiency-based arguments which were antithetical to the explicit subsidization and discrimination required to support selected national champions. Porter conducted an empirical analysis of country level trade data to find rankings of competitive industries across countries. This double diamond framework and its associated thinking can, of course, be generalized to other small open economies besides Canada. Indeed, both theoretical and empirical analysis has built upon the double diamond and been applied to firms from Korea, New Zealand, Austria, Singapore, Australia, and many other non-triad countries. The state of the art in empirical research on international competitiveness, using either the Porter single diamond or the double diamond framework, relies upon country level data. The main premise of this paper is that firm level data can also be used to assess international competitiveness. The research demonstrates unambiguously that large firms operate mainly within their home region; their international sales are not global but intra-regional. Large firm from Japan, China, Korea, Singapore, Malaysia, Indonesia, etc. would expected to grow internationally at a faster pace within the broad triad of Asia, than in North America or Europe. Only a few Japanese firms such as Toyota, Honda and Sony have a significant presence in both North America and Europe. They used two frameworks to examine the international competitiveness of large Asian companies. The first framework brings together country and firm effect based. Country level factors are operationalized as home CSAs, while firm level factors are operationalized as FSAs. Based on the thinking which emphasizes firm and country effect, the following matrix offers a useful working framework to assess the competitiveness of firms. To summarize, using the FSA/CSA matrix of international business to analyze the competitiveness of large Asian firms.