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International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
International Business Bartlett and Ghoshal Chapter 2
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International Business Bartlett and Ghoshal Chapter 2

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  • 1. International Business Bartlett and Ghoshal Chapter 2 Jeff Shay University of Montana
  • 2. Class Business
    • Readings for next week
      • Focus on the Yip article
      • Core Competence article is a “classic”
    • Case study due next week
      • Komatsu Project G
      • Follow guidelines in syllabus
      • One overhead from your exhibits
  • 3. Integration/Responsiveness Framework Global Coordination, Integration High High Low Low Global International Transnational Multi-national Local responsiveness
  • 4. Economic Forces for Global Coordination
    • Economies of scale
      • Spreading fixed costs (i.e., plant & equipment) over a greater number of products
    • Economies of Scope
      • Lowering costs through the production of a wide variety of products
      • Spreads fixed costs over more products or services
    • Factor costs
      • Acquiring resources at lowest possible cost
  • 5. Cultural Forces for Local Differentiation
    • Behavioral
      • Geert Hofstede’s Study
      • 117,000 IBM respondents
      • Surfaced four cultural dimensions:
        • Power Distance
        • Uncertainty Avoidance
        • Masculinity/Femininity
        • Individualism/Collectivism
    • Differences in tastes
      • Heineken: US versus Europe
      • Snickers: US versus Australia
  • 6. Government Forces and the MNC
    • MNC represents:
      • Source of funds
      • Technology
      • Expertise
      • Jobs
    • Government support for the MNC represents:
      • Local-market or resources access
      • Profit and growth opportunities
      • Improved competitive position HOWEVER…
  • 7. Host Country Government’s View of MNCs
    • Avoids or evades taxes
    • Rigs intercompany transfer pricing
    • Run by foreigners from far away
    • Imports (or doesn’t) foreign labor practices
    • Overpays (or underpays)
    • Competes unfairly with local firms (or is in collusion with local firms)
    • Transfers old technologies to the Third World
    • Won’t they come invest (won’t they please go home)
  • 8. MNC-Host Government Relationship: A Study in “Love-Hate” MNC MNC MNC Host government Sought for capital, technology, and management Contributions to social and economic needs Courted for its global efficiency and world market access + MNC MNC MNC Resented for the nation’s dependence on it Disliked for its impact on society Feared for its power and independence -
  • 9. Sources of Conflict: Motivators
    • MNC
    • Strategic viability
      • Global competitiveness
    • Operational viability
      • Profit maximization
    • Host Government
    • National independence
      • Social, economic, and political
    • International competitiveness
  • 10. Sources of Conflict: Objectives
    • MNC
    • Access to markets world-wide
    • Ability to transfer resources freely
    • Freedom to integrate operations globally
    • Host Government
    • Protect national sovereignty from external influence
      • Economic dependence
      • Social disruption
      • Political interference
    • Capture global benefits of:
      • Export markets
      • Efficient industrial base
      • Leading edge technology
  • 11. Sources of Conflict: Measures
    • MNC
    • Primarily financial
      • Profit
      • ROI
      • Market share
    • Host Government
    • Social cost/benefit
    • Political return
    • Industrial policy “fit”
  • 12. MNC-HCG Relationship: The HCG’s Changing Motivations Screening foreign investment
    • Influence operating conditions :
    • Import/Export
    • Transfer payments
    • Employment
    • Technology
    • Implementing industrial policy goals:
    • Sectorial plans
    • Functional programs
    Implies a changing government role: Attracting/ rejecting investment proposals
    • Controlling flows:
    • Goods
    • Funds
    • Technology
    • People
    • Involvement in strategy:
    • Ownership
    • Local facilities functions
    • Strategic priorities
  • 13. MNC-HCG Relationship: The MNC’s Changing Motivations Seeking new market opportunities Capitalizing on access to world-wide sourcing Technology Markets Developing a global network of integrated operations Implies a changing MNC role: Building volume, market share Efficiency drive: Movement of materials and funds to maximize profits Implementing a global strategy, with each subsidiary having a contributing role
  • 14. Shaping the Relationship: Sources of Power
    • MNC
      • No investment or exit option
      • Access to needed resource (capital, technology, etc.)
      • Willingness and ability to align with national priorities
      • Development of local support (shareholders, suppliers, etc.)
      • Position in global economy (market, scale, competitiveness
      • Home country support
    • HCG
      • Legislative power
        • Regulate operating and strategic decisions
      • Market power-government as a customer
      • Incentives, supports
      • Attractiveness to competitors
      • Local operations linkage to global position (“hostage”)
      • Shift in power after investment (“obsolete bargain”)
  • 15. Basis for cooperation or conflict: Types of corporate responses National companies Nationally responsive MNCs Integrated MNCs Govt. Intervention Logics Development of emerging industries Adjustment of declining industries Assertion of national independence
    • National champion
    • Recipient of subsidies
    • Control of domestic market
    • Cooperation
      • Technology
      • Market access
    • Technology retention
    • Leverage global capabilities
    • Progressive escalation of commitment
    • National consolidation
    • Support through international market access
    • Diversification within host country
    • Risk sharing
    • International resources and mkt access as bargaining chip
    * National champion
    • Local face
    • Highlight local benefits
    • Good citizenship
    • Increase the cost of government
    • Reduce the value of local operation as a stand-alone unit
  • 16. MNC-HCG negotiations: A poker game
    • Chips
      • Need to assess the stakes of both sides
      • Need to assess the relative bargaining power and means of leverage
        • Shift over time?
    • Cards
      • Understand both parties’ goals/priorities
        • Internal diversity/disunity
      • Understand other party’s decision process
        • Who has the power/influence?
        • Negotiator’s personal position?
  • 17. MNC-HCG negotiations: A poker game
    • Skill
      • Develop clear negotiation posture and strategy
        • Which arguments in which sequence?
        • Posture shifts (e.g., competitive to collaborate to compromise
      • Think through tactics (time, location, format, negotiators)
        • A human process
  • 18. MNC Strategies and HCG Policies
    • Globally integrated strategies
      • Share benefits of integration with HCG (tax, citizenship costs)
      • Need to specialize and integrate national operations
        • Dislocation during rationalization
          • Rationalization – producing different components or different portions of a product line in different parts of the world to take advantage of comparative advantages in labor, capital or raw materials
        • Dependency on global network
      • Host government influence and control limited
  • 19. MNC Strategies and HCG Policies
    • Multi Focal Strategies
      • Attempt global integration but negotiate strategic roles of national units with host governments
      • Lower ability to share economic benefits offset by higher host government’s influence
      • Greater host government influence traded for increased support
  • 20. MNC Strategies and HCG Policies
    • Nationally Responsive Strategies
      • Forego global integration to respond to host country’s national priorities
      • Exchange of value
        • MNC applies resources and skills to local needs
        • Host government protects and subsidizes to offset economic penalty
        • Host government influence in strategy and operations is high
  • 21. Nature of MNC-HCG Relationship
    • What type of relationship is it?
      • Involved partner (new EuroDisney)
      • Interested stakeholder (Spain and Ford)
      • Active adversary (Airbus countries and Boeing)
    • Depends on:
      • Alignment of Interests and Distribution of Power
    • Varies by:
      • Host country’s strategic importance (LDC v. EU countries)
      • Industry structure and characteristics (shoes v. computers)
      • Company’s competitive position and strategic posture
        • IBM versus Honeywell
  • 22. Pattern of industrial activity as a function of competitiveness of local production and capabilities of national firms Domestic production, extensive exports Foreign investment by local companies Imports, no national production Local investment by foreign firms Strong Strong Domestic production, extensive exports Weak Weak Competitiveness of local factors Capabilities of local firms
  • 23. Strong Strong Weak Weak Competitiveness of local factors Capabilities of local firms However, the situation is not static: The government aspires to build national competitiveness Step 1 Import restrictions through protection: Pent-up demand Step 2 Import substitution: Acquire missing factors Step 3 Fast market growth: Assistance to infant domestic industry Step 4 Active competition Select winners, weed out losers Step 5 Build exports: Trade and investment liberalization Step 6 Foreign investment by local companies when home country factor competitiveness deteriorates
  • 24. Negotiating Mentality: A search for a “Win-Win” Solution
    • Management perceptions and attitudes are key
      • Assumption of an adversarial relationship results in failed or flawed negotiations
      • Assumption of a collaborative relationship can lead to enduring solutions
    • Negotiations are the beginning of a lasting relationship
      • Require trust, fairness
      • Variable sum game allows “Win-Win” solution
  • 25. Search for a “Win-Win” Solution Converging Interests (e.g., global competitiveness) Underlying differences (e.g., measurement criteria) Mutual Interest Joint Gains Competitive relationship Conflicting Goals
  • 26. Evaluating markets: To Enter or Not to Enter Strategic countries Tactical markets Opportunistic markets Strategic Importance High High Low Low Government Restrictions Opportunity cost: Cost of not participating Precedent setting + Added managerial cost of diversity vs
  • 27. Structural Response: Differentiate Posture by Market (Ericsson example) Global Coordination, Integration High High Low Low Local responsiveness Ecuador Holland Denmark Brazil Mexico France Italy
  • 28. Industry Characteristics Firm’s Competitive Posture HCG Policies
    • Differentiation and selectivity in market participation
    • Governments as protectors, partners, or adversaries
    • Required organizational and managerial capabilities
    Interdependencies across Businesses Linkages Viable Strategic Options
  • 29. Industry Structure: Nature and Characteristics
    • Polarized industry categorization
      • - Most industries have global and local aspects
    • Characteristics:
    • National industry characteristics
    • Differentiated markets
    • National scale economies
    • Local competition
    • Global industry characteristics
    • Interdependent markets
    • Extra-national economies
    • Cross-market competition
    • Industry distribution:
    • Cement
    • Metal containers
    • Packaged goods
      • INDUSTRIAL MACHINERY
    • Automobiles
    • Consumer electronics
    • Semiconductors
    • Air frames
    Task distribution: Service Sales Engineering Manufacturing Sourcing Resources
  • 30. Industry Structure: Forces of Change
    • Diverse forces of change are further breaking down polarized industry categories
      • Environmental influences
        • Market evolution
        • Government policies
      • Industry economics
        • Technological evolution
        • Changing logistics
      • Company actions
        • Triggers or impedes macro forces
        • Engaging in “global chess”
  • 31. Developing Entry Strategies: An Opportunistic Approach Opportunistic, incremental entry decisions May lead to expansion in: * wrong business * wrong country * wrong mode Simple internationalization motivations (e.g. market seeking) Undeveloped management perspectives (e.g. “international”)
  • 32. Developing Entry Strategies: A Strategic Approach Sophisticated internationalization motivations (e.g. markets and resource seeking, scanning and positioning Developed management perspectives (e.g. “transnational”) Strategic entry decisions * integrated into corporate objectives * dependent on business an country analysis * linked to internal resource and capabilities
  • 33. The Big Picture Corporate Strategic Objectives
    • Business analysis
    • Industry analysis (structures, economics)
    • Competitor analysis (share, position, intent)
    • Company competitive analysis (competitive advantages and vulnerabilities)
    • Country analysis
    • Market analysis (demand, channels, price)
    • Investment climate, risk (political, social, economic)
    • Host government conditions/concessions (tariffs, restrictions, incentives)
    Internationalization Motivation and Objectives
    • Company Resources and Capabilities
    • Resource and skill audit (financial, technology, materials, management, and org.)
    • Risk Profile
    Internationalization Strategy Entry Strategy
  • 34. Corporate Strategic Objectives Business analysis Country analysis Company Resources and Capabilities Internationalization Strategy Entry Strategy The Big Picture Internationalization Motivation and Objectives Product/market objectives and priorities Infrastructure: Value chain configuration Mode of entry (ownership) Penetration and operating plan Organization and control
  • 35. Entry Mode Alternatives
    • Export
      • Indirect, Direct (e.g., agent), Controlled (e.g., sales branch
    • Contractual
      • License, Franchise, Management or Services Contract, Cooperation Agreements
    • Investment
      • Greenfield, Acquisition, Joint Venture
  • 36. Entry Mode Alternatives
    • Each mode has distinctive costs and benefits and requires different management
    • Choice should be linked to strategic objective of market entry
    • Need to see operating mode as a dynamic option that evolves with environmental and strategic changes
  • 37. Entry Mode and Strategic Objective Domestic production, extensive exports High Good Entry Mode: Joint Venture Resources required: Moderate Management demand: Entry Mode: License Resources required: Little or none Management demand: Low Entry Mode: Distributor Resources required: Limited Management demand: Moderate Entry Mode: Wholly Owned Subsidiary Resources required: High Management demand: Very high Low Low External Attractiveness Political and Investment Climate Internal Fit

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