Вы находитесь на странице: 1из 49

LP - 7 15 Nov17

Ch 7 International Strategies
Learning Objectives
Importance of international expansion
Sources of national advantage
Cost reduction and adaptation to local market --- two opposing forces
Advantages and disadvantages of basic strategies:
International
Global
Multi-domestic
Transnational
Entry Strategies
Learning Outcomes
Students are expected to be aware of the international business strategies
wherein MNCs / INCs attempt to capture new markets or introduce new
products at competitive prices / Low costs

12/14/2017 1
CI

Sep 2016: The world's biggest carmaker, Toyota, recalled 5.8


million cars worldwide over potentially faulty air bags made by
supplier Takata.
Toyota's recall brought its total of recalled Takata airbags to 23.1 million.
So far, a total of 12 carmakers have had to recall vehicles because of faulty
Takata airbags, with the total number of recalls expected to exceed 100
million cars.
12/14/2017 2
Case Study VW with Luxury Models in USA

Passat W-8 ---- $40,000 already on sale


Introduced Touareg and SUV in Jan 2003 cost
$35 -40K - sold only 2,000
However, Phaeton was also introduced in
2003 cost $60K+
Problem
Low sales and Loss of revenue
Reason: World wide perception(Brand Name) VW
not known as SUV maker
12/14/2017 3
LEARNING FROM MISTAKES
Shanghai Automotive Industry Corporation (SAIC), a major
Chinese automaker, wanted to grow outside its home market.

As a step to achieve this aim, it acquired a controlling interest


in SsangYong, a struggling Korean automaker, in 2004.

However, this investment didnt turn out as SAIC had hoped.


After five tumultuous years and $618 million in investment,
SAIC decided to stop any further investments in SsangYong
and saw its ownership stake erode when SsangYong went into
bankruptcy in 2009.

12/14/2017 4
WHAT HAPPENED TO THE UNION
Rationale: Of great potential value was SsangYongs hybrid engine
technology.
SsangYong was burdened by heavy debt and it needed financial relief. It
found ambitious but rich SAIC. Additionally, could help improve
SsangYongs production efficiency due its core competencies.
Dreams do not come true at times: Even with all the potential of two
companies, problems quickly arose. Cultural differences between Chinese
and Korean managers hampered their ability to agree on how to restructure
SsangYong. SAIC had even greater difficulties negotiating with
SsangYongs unions.
South Korea has a heritage of strong unions and difficult management-
labor relations, something that was entirely new to SAIC.
The Cultural Differences were exacerbated by a steep drop in demand for
SsangYongs vehicles. SUVs sales dropped dramatically due high gasoline
prices in 2006 onwards.

12/14/2017 5
What's happening at the worlds horizons
Global Economy

12/14/2017 6
GLOBAL ECONOMY
Despite recession in USA, Japan and Europe and elsewhere, Global market
provides many opportunities for firms to increase their revenue and
profitability.
In the knowledge-intensive economy, there is potential to create advantages
by leveraging firms knowledge when crossing national boundaries to do
business.
Trade is increasing in the fields of semiconductors, automobiles,
commercial aircraft, Telecom, computers and consumer electronics.
Globalization is on the rise. New blocks of growth coming up Brazil,
China, India, Malaysia, Singapore, Korea, Venezuela giving rise to
disparity in wealth
Bank rates, MFN Status, Regional trade patterns are taking over
BRICS a new economic and trade setup (2009)
TPP-2015 (Trans Pacific Partnership) Going ahead without USA
Asia Pacific Economic Conference 2014 - 17
Two new banks one under BRICS and another under Asian Countries both
led by China --- Infrastructure Development in Asia and in BRICS
countries
12/14/2017 7
12/14/2017 8
The BRICS Forum, an independent international
organization encouraging commercial, political and
cultural cooperation between the BRICS nations,
was formed in 2011
12/14/2017 9
GLOBALIZATION

has two meanings.


One is the increase in international exchange,
including trade in goods and services as
well as exchange of money, ideas, and
information.
Two is the growing similarity of laws, rules,
norms, values, and ideas across countries.

12/14/2017 10
Excellent example of GLOBALIZATION
GEs wind energy business benefits by tapping into talent around the
world. The firm has built research centers in China, Germany, India, and
the U.S. We did it, says CEO Jeffrey Immelt, to access the best brains
everywhere in the world. All four centers have played a key role in GEs
development of huge 92-ton turbines:
Chinese researchers in Shanghai designed the
microprocessors that control the pitch of the
blade.
Mechanical engineers from India (Bangalore)
devised mathematical models to maximize the
efficiency of materials in the turbine.
Power-systems experts in the U.S. (Niskayuna,
New York), which has researchers from 55
countries, do the design work.
German Technicians in Munich, have created a
smart turbine that can calculate wind speeds
and signal sensors in other turbines to produce
12/14/2017 maximum electricity. 11
WIND TURBINES
Windmills were used in Persia (Iran) about 500-900 A.D
Windmills first appeared in Europe during the Middle Ages.
The first historical records of their use in England date to the
11th or 12th centuries and there are reports of
German crusaders taking their windmill-making skills to Syria
around 1190.
A 1.5 MW wind turbine of a type frequently seen in the
United States has a tower 80 meters high. The rotor assembly
(blades and hub) weighs 22,000 kilograms. The nacelle, which
contains the generator component, weighs 52,000 kilograms.
The concrete base for the tower is constructed using 26,000
kilograms of reinforcing steel and contains 190 cubic meters
of concrete. The base is 15 meters in diameter and 2.4 meters
thick near the center
12/14/2017 12
Question: Why some nations are economically healthier
than others ?
Business-friendly business policies
Infusion of MNCs with local entrepreneurs
Making best use of inflow of foreign investments
Investment in modern technology
Control over / assured supply of natural resources
HR
Managing:
Interest rates, Inflation, Taxation policies and culture,
Unemployment
Legal systems, Intellectual property rights
Strong educational systems
Informed and vibrant society
Having peace within the borders
Part of the larger world ---------------------?

12/14/2017 13
GDP GROWTH PER PERSON 2001-11 BY REGION

14
12
12

10
8
8
Series 1
6
6 5 5 Column1
4.5
4 Column2
4
1.8 1.8
2 1

0
China India Russia ME SS C&E Latin Japan EU USA
Africa Europe America

12/14/2017 14
GDP Growth by Region 2017
8

0
Dev Adv
Asia & Australsi Cent Cent Eastern
Africa Econom econom World Pakistan India Iran China
Pac a America Asia Europe
ies ies
Series 1 3.5 5.5 2.4 3.8 4.5 2.6 4.6 2.2 3.6 5.3 6.7 3.5 6.8
Series 2
Series 3

Series 1 Series 2 Series 3

12/14/2017 15
DISPARITIES IN WORLD ECONOMY

World 2000/10 ($) --- 12,889Bn - 30,145


Developed World --- 8,624Bn --- 16,620
Europe --- 5,049Bn --- 10,654
Pacific / Asia --- 158Bn --- 313
China --- 474Bn --- 2,874
India --- 93Bn --- 551
Pakistan --- 19Bn --- 59
South Asia
Middle East
Africa North, Sub Sahara
By 2015, trade across the world would increase many times
between the nations (220) and over 5300 Products.

12/14/2017 16
WORLD TRADE A COMPARISON
2014-15

Country Population Exports Imports BOT


2,281,855,922 1,681,670,816 600,185,106
China 1.2Bn
24,722,182 47,544,889 -22,822,707
Pakistan 0.2Bn
264,020,963 390,659,088 -126,638,125
India 1.3Bn

12/14/2017 17
COUNTRY RISK RATING 2013
Rank Country Overall Economic Political Structural Debt Access
Score Indicators to Capital

1 Norway 89 86 91 81 85 97
2 Luxembourg 87 78 91 84 84 95
3 S Pore 86 77 89 84 94 88
4 Sweden 86 79 90 82 82 95
5 Switzerland 86 83 89 87 69 96
10 Canada 81 73 87 78 60 60
12 Germany 80 71 83 77 67 97
15 USA 74 56 81 78 60 97
39 China 59 64 49 54 54 70

12/14/2017 18
GLOBAL COMPETIVENESS INDEX (GCI) REPORT OF
2014-15-17 BY WORLD ECONOMIC FORUM (WEF)

Pakistan has been ranked at 129 out of 144 nations. In year


2014 its position was 133 and has advanced by 30 points
(2017). The report has included views from more than 14,000
business leaders globally to measure each countrys
competitiveness.
The GCI places Switzerland at the top of the ranking for the
5th year running. Singapore and USA are in second and third
place respectively.
The gradual upward swing of Pakistans rank shows the
strengthening of its institutions, policies, and factors that
determine the level of productivity.

12/14/2017 19
WEALTH DISPARITIES
The worlds richest 85 people boast a collective worth of $1.7trn (1trn).
Top of the pile is Carlos Slim Helu, the Mexican telecommunications
mogul, whose familys net wealth is estimated by Forbes business
magazine at $73bn.
He is followed by Bill Gates, the Microsoft founder and philanthropist,
whose worth is put at $67bn and is one of 31 Americans on the list.
Other well known names include the business magnate Warren Buffett,
whose estimated worth is $53.5bn, and Larry Page, the co-founder of
Google, with $23bn.
The worlds richest woman, Liliane Bettencourt, sits on a family fortune of
$30bn derived from LOral, the cosmetics company.
According to Forbes, the richest person in the UK (and 89th in the world) is
the Duke of Westminster, whose property empire has boosted his wealth
to $11.4bn.

12/14/2017 20
Factors affecting a nations Competitiveness
Michael Porters Study among 10 leading nations by
30 researchers over a period of 4 years found out:
Factor Condition --- Production of goods
Demand Condition ---Local demand for the produced
goods
Industries --- Presence of Related and supportive
industries that are internationally competitive
(Knowledge Based Economies)
Strategy, Structure and Rivalry --- How the firms are
created, operated and regulated

12/14/2017 21
FACTOR CONDITION --- PRODUCTION OF GOODS
Skilled manpower
Innovations / Inventions
Creation of / inheriting resource pool
Speed and efficiency of use of resources
Firms specific knowledge and skills

12/14/2017 22
DEMAND CONDITION ---- LOCAL DEMAND FOR THE
PRODUCED GOODS

Consumers trends and tastes


Style and way of life
Purchasing power parity / Indices
Cost of living
Earnings

12/14/2017 23
DEFINITION OF 'PURCHASING POWER PARITY - PPP'

An economic theory that estimates the amount of


adjustment needed on the exchange rate between
countries in order for the exchange to be equivalent
to each currency's purchasing power. The relative
version of PPP is calculated as:
Where S= P1/P2
"S" represents exchange rate of currency 1 to currency 2
"P1" represents the cost of good "x" in currency 1
"P2" represents the cost of good "x" in currency 2

12/14/2017 24
RELATED AND SUPPORTIVE INDUSTRIES

Supplier base
Example Textile / Leather industries
Determination of future demands
Geographic proximity to resources
Investments abroad in those countries that
can fuel related and supportive industries

12/14/2017 25
STRATEGY, STRUCTURE AND RIVALRY

Firms experiencing domestic competition are


more likely to find innovative ways to produce
and distribute its products
In Pakistan ------------- examples are:
Chen One
Gul Ahmed Textile etc
Interwood

12/14/2017 26
INDIAS VIRTUAL DIAMOND IN SOFTWARE a model
Almost 800 firms in fierce
rivalry, growing number of
MNC software development
Domestic centers
Rivalry

Domestic US / Europe
Factor Demand
Demand
Conditions Conditions
conditions

Large pool of skilled labor Large, growing market


Available at low salaries Related and
Supporting
Industries

Large number of educational institutions,


growing communication, and economy
12/14/2017 27
INTERNATIONAL EXPANSION --- MOTIVATIONS AND RISKS
Motivation - Reasons for expanding markets
Population ----- Boon or Bane
Life cycle of a product
Beverages
Automobiles
Cell phones
Computers
Increase market size & Taking advantage of Arbitrage
Performance Enhancement & Growth Potential --- Microsoft establishing
research laboratories outside USA
Value Chain --- Cost Reduction --- Outsourcing to LDCs
Risk Reduction --- Exchange rates

An OECD study predicts that consumption by middle-class consumers in Asian


markets will grow from $4.9 trillion in 2009 to over $30 trillion by 2020. At that
point, Asia will make up 60 percent of global middle-class consumption, up from 20
percent in 2009.

12/14/2017 28
INTERNATIONAL EXPANSION --- RISKS

Risks
Political and Economic Risk (page 221)
Currency Risks Exchange rates
Counterfeiting ---- a direct form of theft of
intellectual property rights ($1.7Tr by 2015)
Management Risks
Challenges and Opportunities
Differences in culture (see page 223)
Local Laws Trade Unions & Regulatory Authorities

Arbitrage Opportunities: an opportunity to profit by


12/14/2017 buying and selling the same good in different markets. 29
ACHIEVING COMPETITIVE ADVANTAGE IN GLOBAL MARKETS

Two opposing pressures:


Cost reduction
Adapting to local markets
Customer wants:
Homogenous products worldwide
High quality
The customer needs can be met by adopting
Economies of Scale in production and marketing
in global markets

12/14/2017 30
GLOBAL DISPERSION OF VALUE CHAINS
Outsourcing occurs when a firm decides to utilize other firms
to perform value - creating activities that were previously
performed in-house. It may be a new activity that the firm is
perfectly capable of doing but chooses to have someone else
perform for cost or quality reasons. Outsourcing can be to
either a domestic or foreign firm.
Offshoring takes place when a firm decides to shift an activity
that they were performing in a domestic location to a foreign
location. For example, both Microsoft and Intel now have R&D
facilities in India, employing a large number of Indian
scientists and engineers.
Often, offshoring and outsourcing go together; that is, a firm
may outsource an activity to a foreign supplier, thereby
causing the work to be offshored as well (page 225).

12/14/2017 31
COMPARISON OF STRATEGIES FOR WORLDWIDE
BUSINESSES
Low to High

Trans
Global National
Pressure for lower costs

Multi
Int Domestic

Pressure for local adaptation Low High

12/14/2017 32
THE STRATEGIES
International
a strategy based on firms diffusion and
adaptation of the parent companies
knowledge and expertise to foreign markets,
used in industries where the pressures for
both local adaptation and lowering costs are
low.
Different activities in value-chain incl R & D be located in
low-cost location
Centralized R & D
Currency susceptible to fluctuations

12/14/2017 33
GLOBAL STRATEGY
a strategy based on firms centralization and
control by the corporate office, with the
primary emphasis on controlling costs, and
used in industries where the pressure for local
adaptation is low and the pressure for
lowering costs is high.
DM highly centralized in the corporate office:
Economies of scale
Activity in different locations
Standard level of quality throughout the world ----?
Not to depend upon one location ---- a grave risk

12/14/2017 34
GLOBAL STRATEGY --- How to achieve

Regionalization: Increasing international exchange


of goods, services, money, people, ideas, and
information; and the increasing similarity of
culture, laws, rules, and norms within a region
such as Europe, North America, or Asia.

Trading Blocs: Groups of countries agreeing to


increase trade between them by lowering trade
barriers.

12/14/2017 35
GLOBAL STRATEGY
Strengths
Strong integration across various businesses.
Standardization leads to higher economies of scale, which
lowers costs.
Helps create uniform standards of quality throughout the
world.
Limitations
Limited ability to adapt to local markets.
Concentration of activities may increase dependence on a
single facility.
Single locations may lead to higher tariffs and
transportation costs.

12/14/2017 36
THE STRATEGIES --- WORLD LEVEL

Multi-domestic Strategy: a strategy based on


firms differentiating their products and services to
adapt to local markets, used in industries where the
pressure for local adaptation is high and the pressure
for lowering costs is low.
Transnational Strategy: A strategy based on
firms optimizing the trade-offs associated with
efficiency, local adaptation, and learning, used in
industries where the pressures for both local
adaptation and lowering costs are high.

12/14/2017 37
ENTRY MODES OF INTERNATIONAL EXPANSION
Wholly owned
Subsidiary
High

JV
Effect of investment and risk

Strat. Alliance

Franchising

Licensing

Exporting

Low
High
Degree of ownership and Control
12/14/2017 38
ENTRY MODES OF INTERNATIONAL EXPANSION
Exporting -- Selling to other country
Licensing -- Allowing to use trademark, patent, trade secret etc .
Control of product, revenue and profits are given up. Right to
receive fee in exchange.
Franchising -- Offers technology, formulae, machinery, expertise
and supervision. Parent company receives part of revenue.
Strategic Alliance Does not Create a third party legal entity but
places certain limitations on the second party. ToT takes place.
Joint Ventures Creates a third party legal entity. ToT and expertise
incl machinery, R&D, design, formulae, trade mark are shared. The
most advantage goes to receiving party.
Wholly owned subsidiary A MNC owns 100% stocks. It either
acquires a local firm or establishes a new one.

12/14/2017 39
Thank you for investing your time with me. Please go to
the library and learn more about todays topic.

12/14/2017 40
12/14/2017 41
12/14/2017 42
How to attempt your Research Paper

12/14/2017 43
FINAL PROJECT PRESENTATIONS
STM

Note: Read the book and complete your assignment as per StM
Book

Step 1
Pick up one of the 34 Firms / Organizations that have been listed by
the GOP for privatization / sale. Alternatively, you may select any
other organization that is looking for revival so long as it meets the
following minimum conditions:

Listed on Stock Exchange


Be a Limited company
Should have a management (CEO, BOD and shareholders)

12/14/2017 44
Step 2
Get the maximum details about its past and present. Historical perspective
must include the following (Support activities- Resources both Tangible and
Intangible) as a minimum:
Vision, Mission, and Goals / Objectives
When was the firm established and the prevailing environment under
which the firm was established?
What were the mission and objectives at the time of its establishment?
What was the extent of capital investment, technology, raw materials and
spares? Were they being locally procured or imported?
Who were identified its strategic partners, suppliers and customers?
Who and from where the main plant was acquired and has it been
upgraded / updated?
What level of training was afforded to the personnel?
Determine the quality and role of HR and modern technology (IT and
computers)
Strengths and weaknesses including CA/CP etc.
Analysis of Balance Sheets
12/14/2017 45
Step 3
Refer to the Book and undertake External Analysis in as much
detail as possible. Do not miss out any aspect.
Refer to the book and conduct Internal Analysis. Do not
miss out any aspect.
In order to complete requirements of External and Internal
analysiss:
Meet the management
Prepare questionnaire for presentation to the Firm
employees and get maximum details that would help you
complete the requirements of Ext and Int analysis
Determine impact of each and every factor that has
played its role / continues to impact the business of the
firm
Determination of CA/CP
12/14/2017 46
Step 4
Find out what Business Level Strategies have been / are
being adopted by the Org /Firm.
The Org / Firm employees may not be very familiar with
the 3 Generic Strategies, but you can; based on your
knowledge, convert the information obtained through
Questionnaire / Interviews into Strategies.
Find out for yourselves what has been lacking in the
formulation of strategies vis--vis Ext analysis
Comment upon the role of HR and technology (IT and
Computers) in furthering upon the achievement of
realized strategies/revision of goals and objectives as
well as Vision and Mission

12/14/2017 47
Step 5
Undertake Resource Based View (RBV) of the firm
Determine what is needed for Revival of the Firm:
Is it the Capital, the Technology, the HR, the
Training and / or Political Will (Leadership Crisis)
Is the availability of resources (Inbound
Logistics) that is causing the problems?
Markets / Dealership
Obtain an endorsement of your outcome (scripted
evaluation) from the Firm / Org. Non availability of
the same may render the presentation Un-
assessed.

12/14/2017 48
THE WAY TO DO IT
Make a group of at least ------ students
Hold discussions and select a firm (primary) and another firm (secondary)
Ensure good linkages and networking basic criteria to get the best
information from the desired firm
Divide tasks amongst yourselves, while nominating one of you as leader
Get hold of information from all the sources possible and put it together
for final draft
Set out all the info in the format of case study or as per the contents of the
book
Make slides --- number them and they should be readable. Use NO
Designs.
Make presentation in the class
Duration of presentation 30 min max and 3 speakers are allowed. It is
mandatory for the Team Leader to Open and Close the presentation.
Best Team would be presented with a gift (Book).
Date to be indicated
Thank you and best of luck
12/14/2017 49