International StrategyInternational Strategy

International Business Institute

May, 2001

Which Group exports more cars?

The 21 foreign auto makers The “big three” American Auto makers

Which Group exports more cars? The 21 foreign auto makers The “big three” American Auto makers

Largest U.S. Multinationals:% of Total from Non U. S. Markets

Company Revenues Profits AssetsExxon 77.3 77.0 56.4GM 28.0 91.0 21.3Mobil 67.5 79.8 62.6IBM 59.0 D-D 55.1Ford Motor 30.3 D-P 26.0Texaco 53.5 51.8 39.1Citicorp 64.5 81.3 51.3du Pont de Neours 51.4 99.8 37.3Chevron 41.1 67.0 55.2Proctor & Gamble 52.1 65.1 40.7

International Strategy

What is a global business?

Will a global business succeed?

How do firms enter global markets?

How does a firm manage a global operation?

What is a Global Business?What is a Global Business?

What are the unique challenges?

Unique IssuesUnique Issues

Complex Pricing exchange rates

Political Risk threats to ownership, and profit

Political Risk and Economic Forecast

Country Transfer Investment Export Inflation

Argentina B- B+ C+ 25.0Brazil D+ D+ D+ 200.0India C+ C- C- 8.0Italy B+ A- B+ 5.0Japan A A A+ 2.5Philippines D+ D+ D 12.0Spain A-(B+) A-(B) A-(B) 4.0Taiwan A A+ A+ 4.0U.S. A A A- 2.5

Dow Jones Global Stock Indices1999 % Growth in Market Cap

Country %$ Local Currency %Chile 32.91 48.88 Brazil 50.99 134.82Australia 20.53 12.45Italy 6.45 24.33Japan 67.26 50.12Philippines 2.59 5.75Spain 4.58 21.87Hong Kong 73.20 73.81

Unique IssuesUnique Issues

Cultural Differences– tastes, values language

Conflicting political demand– government policies and economic systems

Advantages of GlobalizationAdvantages of Globalization

Scale economies Growth potential Factor costs Vertical integration demands Opportunities Competitive dynamics

– homogenization of global culture

Will a global business succeed?

Do competitive advantages transfer?

A competitive advantage based on ______________ is most likely to transfer across national boundaries successfully

a. priceb. product designc. an ability and willingness to

learnd. specific skills

Transferring Competitive Advantage

Transferring Competitive AdvantagesTransferring Competitive Advantages

Advantages vary across value chain

Downstream advantages• price, product design,

Midstream advantages• assets, skills, relations with other firms

Upstream advantages• ability and willingness to learn, adaptability

Transferring Competitive AdvantagesTransferring Competitive Advantages

Advantages vary across domains International Contexts

• public good issues regulatory climate, economy, trade policy, etc.

• infrastructuretransportation, education, communication, etc.

Industry Contexts• structure

competitive rivalry, entry barriers, etc.

Limitations on TransferabilityLimitations on Transferability

Geographic advantages– labor, monopoly positions, distribution network,

reputation, customer or supplier relations Tacit knowledge

– difficult to enact in different context, unknown interaction with context

Cost of transfer– loss of effectiveness or efficiency

Mode of transfer– joint venture, partnership, direct investment

Transferring Competitive Advantages

Domestic advantages may not transfer across national boundaries he 21 foreign auto makers– The advantage in the home market may not be

the most important in foreign markets. International advantages may not hold in

domestic markets– A successful international competitor may not

be the strongest firm at home.

A competitive advantage based on ______________ is most likely to transfer across national boundaries successfully

a. priceb. product designc. an ability and willingness to

learnd. specific skills

Transferring Competitive Advantage

Walmart Enters Germany

Does Small Town America Sell

in Europe?

How do firms enter global markets?

Balancing opportunity against opportunism

Modes of Entry

Exportation– accessing markets at low risk

Licensing– retaining some rights to product design

Joint Venture– looking for complementary knowledge

Foreign Direct Investment– going it alone

Balancing opportunity with opportunism Opportunity

– the potential returns from taking products into new geographic regions

Opportunism– Contracting and moral hazard– Contracting and learning opportunities.

• knowledge transfer • knowledge development

Matching Advantage to Mode of Entry

Downstream advantages– export or license

Midstream advantages – joint venture or direct investment

Upstream advantages– direct investment

How do firms manage global operations?

Balancing Economics and Politics

Economic demands

Remain competitive within one’s industry– Improve efficiency by streamlining operations– Achieve economies of scale– Coordinate R&D efforts

Share assets and knowledge as much as possible– Transfer people and knowledge

Political Demands

Be responsible to local government demands

– jobs and taxes Adjust to different regulatory setting

– restrictions on competitive practices Recognize cultural differences

– product design and placement– human resource practices

Strategic OptionsStrategic Options

Global or Regional Strategy– Cost

• scale economies, rationalize and integrate activities , allows side-payments (good citizen), simplifies management practices

– Lowers expropriation risk – Power

• larger firms have more influence on environment, deal with integrated rival firms

Strategic OptionsStrategic Options

Multinational or Nationally Responsive Strategy– Differentiation advantages

• respond to local tastes and preferences– Image advantages

• subsidiaries have latitude to respond to local political needs, used where government plays a key role

Strategic OptionsStrategic Options Transnational Strategy

– Balances cost with differentiation benefits• business manager• country manager• functional manager• corporate manager

– Balance global efficiency and competitiveness with national-level responsiveness and flexibility

– cross market capacity to leverage learning

Think Globally, Act Locally

Shiseido Ltd– regional offices in Americas and Europe

regional offices focus on operational efficiency local focus with outlets in emerging markets

Nestle– 500 factories w/ 225,000 people globally

decentralized marketing, H/R, local operations centralize strategic decisions, economies

Pedagogy

Involve students with questions– have them discuss and debate before moving on

Include real-life examples– video clips, pictures, data

Organize the material into a story with a logical sequence