international strategic business management

International Strategic

Business Management

Hasan Furqan

Hochschule Furtwangen University, Furtwangen Germany

SS 2012

Agenda

Strategic Management

Strategic Formulation

Porter Five Forces

International Strategic Management

Motives of Globalization

Strategic Objectives & Sources of

Competitive Advantages

Strategic Orientation of International

Firms

Strategies for International Firms

Conclusion

International Strategic Business

Management Charles W.L.Hill

“An international business is; any firm that engages in international trade and investment….export or import products from other countries.”

Other definitions suggests

• “a business whose activities involve the crossing of national boundaries”

• “any commercial, industrial or professional endeavor involving two or more nations”

• “any business transaction that involve two or more countries”

International Strategic Business

Management

• Why Firms Globalize:

Why Firms Globalize:

• Market Seeking Motives:

o Increase Market Share: e.g. McDonalds, Pizza Hut expanded…

• Cost Reduction Motives:

o Labor Cost e.g. China, India,…

o Transportation Cost

o Tax Exemptions e.g. Intel in Costa Rica & Mercedes in Albana.

o Environment Protection Laws e.g. Africa, Asia, Latin America.

Why Firms Globalize:

• Strategic Motives:

o Risk Diversion e.g. Auto parts are produced in USA, Mexico, India, Indonesia etc.

o Vertical Integration e.g. Oil exploration companies into Oil refinery…

o Exporting Facility e.g. Textile Manufacturers in Bangladesh

• Other Motives o Power & Prestige

o Exploitation of specific advantages

o Synergy

o International Competition

Strategic Objective & Source of Competitive

Advantage

Global Strategic Objectives:

1. Achieving Efficiency o carrying out all value chain activities to a required quality at lowest cost

2. Managing Risk o like exchange rate risks, political risks, raw material sourcing risks etc.

3. Innovating, learning and adapting o learn from the different societies, culture and markets.

• Sumantra Ghoshal presented strategic objectives of an international

firm and the sources of developing competitive advantage.

Strategic Objective & Source of Competitive

Advantage

Global Competitive Advantages:

1. National Differences o e.g. low wage rate in different countries, relative cost of capital, tax regimes

2. Scale Economies o to operate at the optimal economic scale for minimum unit cost

3. Scope Economies o use of global brands names like Coca Cola or McDonald’s.

India Dell Coca Cola

Toyota India Japan

U.S.A Hewlett Packard

Lilly & Ranbaxy


Firms

Global Orientation

(Chemicals, Heavy Metals)

Transnational Orientation

(Pharmaceuticals, Telecommunications)

International Orientation (Cement,

Fabric Mills)

Multi-domestic Orientation

Local Responsiveness Pressure

Global

Integration &

Coordination

Pressure

High

Low

High Low


Firms 1-International Orientation:

• no pressure to be globally integrated,

• cost effective or locally responsive

• Domestic customers are its backbone

• sell outside when o approached by an international customer

o in times of recession,

o when overcapacity looms

• metal industries, cement, machinery, paper, textile, printing and publishing

.


Firms

2-Global Orientation:

• Companies search for o commonality of consumer tastes and preferences,

o market segments

o life style among different countries.

• Companies with global strategy o have standardized products

o strong brand names.

o have same strategies with little regional and cultural modifications.

• e.g. Gillette, Coca-Cola or Johnson and Johnson’s


Firms 3-Multi-domestic Orientation

• Strategic approach that attacks

each market individually

• Companies adopt o Decentralize approach

o products, strategies and

o management practices country by country.

• Commonly used by the European multinational firms like Unilever

• Industries like beverages, food, rubber, household appliances and tobacco.


Firms

4-Transnational Orientation:

• Firm achieve both global

efficiency and local responsiveness.

• Companies attempt to be responsive o to host country markets through

o adaption of products, marketing strategies and

o management practices to suit local conditions.

• Pharmaceutical, telecommunication, financial services,

computers and automobiles companies

Competitive Strategies for Firms in Foreign

Markets

Joint Venture

Licensing, Contract

Manufacturing, Franchising

Export

Licensing, Contract

Manufacturing, Franchising

Joint Venture

Foreign Branch Wholly Owned

Foreign Subsidiary

Foreign Branch

Joint Venture

High Low

High

Low

Market Complexity

Pro

du

ct D

iver

sity


Markets

1-Exporting:

• sending a firm’s product or services to international

destinations.

• company low in market complexity and product

diversity…

• Usually require minimal capital investment

• Two methods of export management

1. Indirect Exporting

2. Direct Exporting


Markets

Indirect Exporting:

• Products are sent overseas without the firm’s ultimate involvement.

• Small and medium size companies

Direct Exporting:

• company internationalizes the export function

• takes responsibility of selling its products

• without an intermediary, to

• an importer located in a market abroad.

• Large size companies

Example: A Taiwanese company, Gigabyte…..


Markets

2-Licensing/Contract Manufacturing:

• Licensing involve the transfer of some industrial property right from the licensor to a licensee.

• Most tend to be patents, trademarks, e.g. beer manufacturers

• Another licensee strategy is o to contract the manufacturing of a product line to a foreign company e.g. Nike,

• There are two main problems in licensing o foreign partner can become a competitor

o little control over the manufacturer and marketing


Markets

3-Franchising

• It requires the transfer of o technology, business systems, brand name, trademark, marketing strategies and other

property rights

• Around 50% of all major retail businesses are franchisee.

• Coca-Cola and Pepsi Co send the syrup,

• e.g. Marriot, Holiday Inn, Hilton, McDonald’s, Burger King, Hertz

• Disadvantage is that a franchisee may spoil the franchisor’s image…


Markets

4-Joint Ventures:

• an arrangement in which firms from different nations o pool a portion of their respective resources

o within a common, legal organization.

• Established to jointly develop a new technology or to obtain resources like exploration of oil and gas.

• More permanent cooperative relationships than export or contract manufacturing

• it begins with a mutually agreeable pooling of o capital, production or marketing equipment,

o patents, trademarks, or management expertise.


Markets

5-Foreign Branches:

• An extension of the company in its foreign market.

• Directly responsible for o sales, customer service, physical distribution

o any other operational duties assigned to it.

• It has some local managers in middle and upper level positions.

• most likely be outside the legal jurisdiction of the firm

• License for operations may be of short duration.


Markets

6-Wholly Owned Subsidiaries:

• Companies that are willing and able to o make highest investment committed to the foreign market.

• Complex, potentially costly, but above average return.

• Firm maintains control over o technology, marketing and distribution of the product.

• The firm must build new o manufacturing plants,

o distribution networks

o marketing strategies to compete in the new markets.

Conclusion

To enter in a foreign market a company must

1. Identify its objectives

2. Preliminary country screening,

3. Identify the opportunities and constraints

4. Identify key success factors

5. Analyze strengths and weakness

6. Optimal way to enter, How?

7. Compare and rank the target countries.