part 8: Global entrepreneurship class

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part 8: Global entrepreneurship class

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part 8: Global entrepreneurship class

  1. 1. Developing Global Mindset for Entrepreneurs
  2. 2. Class #8 Saturday May 29th , 2010
  3. 3. Professor of international finance and global entrepreneurship with Forum-Nexus Study Abroad. Guest lecturer with the IQS Business School of the Ramon Llull University in Barcelona, and the Catholic University of Milan. Previously, Brian taught finance, economics and global trade courses at Thunderbird’s Global MBA program in Miami, and worked as a research analyst at the Columbia University Business School in New York City. briandbutler@gmail.com A global citizen, Brian was born in Canada, raised in LinkedIn/briandbutler Switzerland (where he attended international British school), educated through university in the U.S., started his career with a Japanese company, moved to New York to work as an Skype: briandbutler analyst, married a Brazilian, and has traveled extensively in Latin America, Asia, Europe and North America. Brian currently lives in Recife, Brazil where he is teaching classes on “Global Entrepreneurship” at the university FBV.
  4. 4. 1. Culture + Entrepreneurs 2. Homework review – personal COI 3. Exam return 4. Entrepreneurship ideas 5. Market entry strategy
  5. 5.  Question:  Are there any cultural aspects that lead to entrepreneurship?  Are certain cultures more “entrepreneurial”?  Can “style switching” be encouraged for entrepreneurship?  Class discussion…
  6. 6. 1. Development issue:  Which cultural traits probably lead to more entrepreneurship, hence more economic development?  Which factors are most important for entrepreneurship + level of entrepreneurship in different places? 2. Personal issue  What style switching should you do to promote entrepreneurship?
  7. 7.  What COI factors are concentrated in entrepreneurs?  Any guesses??
  8. 8. "Why not me?" attitude:  in cultures with “Equality” culture: ▪ people think that everyone is equal, and that anyone can achieve great success. ▪ The legend of kids creating multinational corporation from their garages…fuels this optimism that anyone can achieve greatness.
  9. 9. 1. Environment:  Control ▪ World can be changed to fit “me” ▪ Not “harmony” or “constraint” 2. Individualism  Particularistic ▪ “rules don’t apply to me” (not constrained)
  10. 10. 4. Competitiveness  Are you comfortable with competition?  Desire for self-recognition?  Wiling to leave the group / loyal to the group (thinking)? 5. Structure –  Flexibility, Not “order” focused  Better if likes flexibility, innovation, adaptation  Comfortable with risks  Dynamic goals (changing)  Problem solving needs flexibility  Tolerate unpredictable, dissent (Israel)
  11. 11. 6. Thinking:  Inductive vs. Deductive  Slight advantage to deductive thought – not constrained by “fact”, but instead gravitate to grand theories, and “visions” (visionary)  Inductive is better for big-company (systematic process) innovations  Deductive is better for entrepreneurs and big changes
  12. 12. 7. Time  Future orientation  Multi-focused (to wear “all hats” during startup phase)
  13. 13. Personal COI
  14. 14.  Compare yourself with this hypothetical German person:  Deductive, linear, doing, low-context, direct, fluid time, single focus, competitive, equality  See next slide
  15. 15. Gap Analysis •Deductive, •Linear •doing, •low-context, •direct, •fluid time, •single focus, •competitive, •equality
  16. 16.  Gap analysis:  Questions  Which areas do you have the greatest gaps? (areas of potential conflict)?  What could you do (style switching) to lesson the potential problems?  Class discuss…
  17. 17. Review – grades
  18. 18.  Keep for 1 week  Need to return next week to me
  19. 19.  Components of Final Grade  Exam a- 20%  Exam b- 30%  Team project 25%  Assignments 15%  Class participation 10%
  20. 20.  This exam was only 20% of your final grade  So, if you didn’t do well…  Or, if you did do well… ▪there is still time!
  21. 21.  4 more classes  Today Attendance + Homework = 25% of  June 5th your grade!!  June 12th  June 19th –Exam 30% of your grade!!  One week later – team project due  June 26th - 25% of your grade!!
  22. 22.  Homework / assignments:  I f you missed any homework… you may still submit them!  How? Review slides from previous lectures. Look for homework assignments. If you didn’t do any… DO THEM NOW!!!!  Group Project  Get together and start working today!  Don’t wait till the last second!!
  23. 23. Who are the teams? - one group of 5? - or, two smaller groups?
  24. 24.  Discuss…  +1 point for participation grade for students with original ideas (not previously discussed in class)  Include 3-questions analysis of idea:  What problem? What trend? What transferrable?  (so, start with idea, then use 3 questions to evaluate) Mine: water cup – airports – transfer from Brazil. Problem is price, size. Trend is economic crisis
  25. 25. Market entry strategies for Entrepreneurs
  26. 26.  Deciding to go global is not enough…  Next, you need to decide HOW to go global:  Export, license, franchise, create a subsidiary, foreign direct investment, acquire a company abroad, etc…
  27. 27. FDI: Wholly Level of CONTROL over foreign activities HIGH owned subsidiary Franchising Joint Venture with local partner Licensing Export through agent or distributor Indirect LOW Export LOW HIGH Commitment: Amount of Resources committed to foreign market Bartlett & Ghoshal
  28. 28.  Exports  (a) direct, (b) through a distributor, (c) through a trading company.  Contracting  Examples: (a) licensing technology, (b) franchising, (c) management contracting, (d) turnkey venture, (e) joint marketing agreement.  Partially owned Direct investment  Examples: (a) joint venture with local company, (b) joint venture with foreign company, (c) joint venture with government.  Fully owned Direct investment  Examples: (a) assembly plant for local sales, (b) basic manufacturing, (c) raw materials extraction, (d) offshore assembly plant. Professor Robert Grosse, Thunderbird
  29. 29. Decision Criteria* Impact Form of Foreign Added Capital Management Technology Political on Involvement Income Commitment Commitment Commitment Risk Flexibility Rivals Exports† ? Low Low Low Low High ? Contracting‡ ? Low Possibly high Possibly high Low ? ? Partially owned ? ? Possibly high High Medium Low ? direct investment§ Wholly owned ? High High Low High ? ? direct investmentII * Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency. The rankings will differ from company to company and also across countries. Professor Robert Grosse, Thunderbird
  30. 30.  But, how do you decide which is right for you? 1. You could see what others in your INDUSTRY are doing:  How does the typical firm in your industry go abroad?
  31. 31. HIGH Pressures Toward Global Integration Aircraft Cameras Telecommunications Consumer Electronics Aerospace Computers Pharmaceuticals Global Strategy Automobiles Synthetic Fibers Steel Clothing Multi-domestic Strategy Cement LOW Packaged Foods LOW HIGH Pressures Toward Localization Source: Professor Robert Grosse, Thunderbird
  32. 32.  We have covered this before, but its worth reviewing… 1. Global strategies:  Pressures toward globalization include economies of scale and benefits from centralized decision-making 2. Local strategies:  Pressures toward localization (adaptation) include cultural differences, government regulation, benefits from decentralized decision-making Bartlett & Ghoshal, slides from Professor Robert Grosse, Thunderbird
  33. 33.  When should you choose to invest in FDI abroad?
  34. 34. FDI: Wholly Level of CONTROL over foreign activities HIGH owned subsidiary Franchising Joint Venture with local partner Licensing Export through agent or distributor Indirect LOW Export LOW HIGH Commitment: Amount of Resources committed to foreign market
  35. 35. Supply Side – looking Demand Side – looking for raw materials for customers 1. To lower 1. To explore new production costs. markets, and to 2. To lower delivery serve a “portfolio” of costs (costs of markets. transportation, insurance, tariffs, 2. Because an export etc.) market was closed by a prohibitive tariff or quota.
  36. 36. Supply Side – looking Demand Side – looking for raw materials for customers 3. To acquire a necessary raw 3. To establish a local material. presence with service 4. To do offshore and product assembly. availability. 5. To establish a “portfolio” of 4. To meet “buy production sources. national” rules or preferences in the host country.
  37. 37. Supply Side Demand Side 6. To obtain 5. To gain visibility as technology a “local” firm, and skills. employing local people, paying local taxes. 6. To respond to rivals’ threats.
  38. 38. Deciding YES/NO ?
  39. 39. To decide whether to invest overseas, there is a useful model: OLI  Ownership advantages  Location advantages  Internalization advantages  Need all 3 – or else don’t invest in FDI  Instead – choose other method – export, license, franchise, etc. Professor Robert Grosse, Thunderbird
  40. 40. FDI decision should be made on the grounds of these three factors: 1. Ownership advantages:  (competitive advantages)  the company’s competitive advantages, such as proprietary technology, management skills, goodwill, and economies of scale.  a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse, Thunderbird
  41. 41. 2. Location advantages.  (comparative advantage)  the relevant cost, risk, and regulatory conditions in the countries under consideration. These include national production costs, tariffs, taxes, international transportation costs; and political risks.  a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse, Thunderbird
  42. 42. 3. Internalization advantages:  (advantages of horizontal and vertical integration)  the benefits that the firm would realize by itself operating in the host country versus the benefits of operating through a local distributor, licensee, or other contractee.  a company should use foreign direct investment …and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example, under a licensing agreement or for contract production). Professor Robert Grosse, Thunderbird
  43. 43. If all three conditions do not hold, then another strategy would be better. Professor Robert Grosse, Thunderbird
  44. 44.  the eclectic theory says that a company should use foreign direct investment when a) it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors; b) when the location factors favor local production over importing from the home country; c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example, under a licensing agreement or for contract production). Professor Robert Grosse, Thunderbird
  45. 45. To decide whether to invest overseas, there is a useful model: OLI  Ownership advantages  Location advantages  Internalization advantages  Need all 3 – or else don’t invest in FDI  Instead – choose other method – export, license, franchise, etc. Professor Robert Grosse, Thunderbird
  46. 46. If company has 2 out of 3:  competitive advantages (O),  and finds that producing for itself (I) would be more profitable than contracting out to another firm under license,  but  costs in foreign country (L) are higher than costs in the home country,  then should export its products Professor Robert Grosse, Thunderbird
  47. 47. FDI: Wholly Level of CONTROL over foreign activities HIGH owned subsidiary Franchising Joint Venture with local partner Licensing Export through agent or distributor Indirect LOW Export LOW HIGH Commitment: Amount of Resources committed to foreign market
  48. 48. If company has other 2 out of 3  (O) competitive advantages  (L) and lower costs in foreign country than elsewhere,  but  (i) finds that contracting out to another manufacturer would be more profitable than producing for itself,  then  company should license its products to the other company for sale  or should contract out the manufacturing and keep the distribution and marketing business for itself. Professor Robert Grosse, Thunderbird
  49. 49. FDI: Wholly Level of CONTROL over foreign activities HIGH owned subsidiary Franchising Joint Venture with local partner Licensing Export through agent or distributor Indirect LOW Export LOW HIGH Commitment: Amount of Resources committed to foreign market
  50. 50. If company  (L) finds foreign country to be a cost-competitive place to manufacture,  (i) and company finds that it would be more profitable to manufacture for itself rather than contracting out, But,  (O) no superior products or marketing skills (competitive advantages),  then the possible solutions would be  a joint venture with another firm that does have competitive advantages  or the purchase of product lines that are differentiated and competitive, to give company a competitive base in foreign country. Professor Robert Grosse, Thunderbird
  51. 51. FDI: Wholly Level of CONTROL over foreign activities HIGH owned subsidiary Franchising Joint Venture with local partner Licensing Export through agent or distributor Indirect LOW Export LOW HIGH Commitment: Amount of Resources committed to foreign market
  52. 52.  Three questions to ask:  Are there potential benefits for our company? ▪ Don’t just follow competitors. ▪ Don’t overestimate the benefits  Do we have the necessary management skills? ▪ (do you REALLY have the skills?)  Will the costs outweigh the benefits? ▪ (extra coordination costs, setup costs, etc) http://globotrends.pbworks.com/international+expans
  53. 53.  Examples of failed globalization strategies:  ABN AMRO  AES - (US power company)  Daimler- Chrysler merger  BTR - industrial conglomerate  TCL - Chinese maker of electronics  Kelda - a UK water utility  Deutsche Telekom (T-mobile)  Deutsche Post - overpaid for DHL and Airborne  AXA - French insurance group  BenQ- acquisition of Siemens mobile device business http://globotrends.pbworks.com/international+expans
  54. 54.  new management requirements for companies attempting to internationalize.  Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name, exporting, or franchising as less- risky ways of going abroad
  55. 55.  Once a firm internationalizes, they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time.
  56. 56.  A global manager also has to be on the lookout for macroeconomic changes, and to be aware that countries (and individual states) have their own objectives, and that there is a risk that those objectives might change over time.
  57. 57.  You need to monitor changes in elections and policies to see if country strategy and yours become misaligned. This could result in serious risk (or opportunities) for your company.
  58. 58. Market entry strategies for Entrepreneurs
  59. 59. 1. International - typical USA 2. Multi-National - typical European “multi-domestic” 3. Global - typical Japanese Transnational - tries to combine best of all 3 Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  60. 60.  “international” strategy – classic US based companies strategy  “International Product cycle”  Products first developed for home market, only later sold abroad  Foreign subsidiaries as “outposts” - marketing and sales appendages.  Innovations developed at home, transferred abroad Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  61. 61.  Managers assigned are often domestic “misfits” who happen to know a foreign language, or previously lived abroad Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  62. 62.  Weakness  lacked the corporate structure for capturing worldwide innovation and learning. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  63. 63.  The classic “multinational” model is seen in abundance with European firms  manage a portfolio of relatively independent national subsidiaries.  With a long history of protectionism and wars, European companies became very adept at managing a decentralized federation, running subsidiaries with a high level of autonomy. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  64. 64.  Emphasize differences among national markets  Flexible approach  Modify products, strategies country-by- country  Multiple-nationally responsive strategies Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  65. 65.  Managers of foreign operations  Highly independent entrepreneurs  Often nationals of foreign markets  Use local market knowledge  Seek local growth, using investment from parent company Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  66. 66.  One of the drawbacks, however  is that they have given up global scale efficiency, and may be redundant in many of their tasks. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  67. 67.  The “global” model which is epitomized by companies such as Toyota, focused on centralizing efforts and gaining efficiency for exports,  Centralized control  Assume tastes globally are similar Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  68. 68.  Weakness: lack of local responsiveness and flexibility.  Management: central coordination, central control  Research & Development – from home country. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  69. 69.  Transnational companies are complex organizations that attempt to extract the benefits of “international”, “global”, or “multinational” firms, but at the same time, they try to mitigate the drawbacks from each. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  70. 70.  A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  71. 71.  The transnational company is one that attempts to capture all of the strengths of these three global strategies, and attempts to avoid any of the weaknesses.  HIGHEST LEVEL OF SOPHISTICATION Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  72. 72.  decentralizing decision making power and to increase the local responsiveness to local market conditions  transnational mindset of brand management where winning brands can be developed anywhere  local flexibility, global efficiency, or worldwide learning
  73. 73.  transnational companies locate each of these activities in an area that gives them the largest competitive advantage, and lowest costs for each individual function  operations, R&D, sales, marketing, customer service, and purchasing Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  74. 74.  Manufacturing, for example, might be placed in the location with the lowest factor input costs related to labor,  but R&D might be located in a place which has advanced education, a history of innovation, or a developed and highly competitive consumer market. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  75. 75.  For example,  the USA might be selected for design,  China for manufacturing,  UK for research,  and India for call center outsourcing or software design,  creating many “centers of excellence” across the globe, which are all globally linked together through the value chain. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  76. 76.  Where should innovation come from?  Just the USA?  Just big multi-nationals?  NO!! Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  77. 77.  Two models  center-for-global innovation model ▪ All innovation at home R&D center. Innovations developed at home are later sent to the field  locally-leveraged, but then globally-linked innovation models. ▪ Innovation can come from anywhere. ▪ Companies try to “catch” innovation from the field. ▪ Share innovation from one emerging market to another Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  78. 78.  The global market for knowledge is changing, and it is common to find centers for innovation in many non-traditional market locations around the world. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  79. 79.  The old thinking  USA was the best location for developing innovation, which directly led to the strategy of “international” that many US based companies followed.  The idea was that the USA had the most sophisticated consumer market, the most developed technology, and the highest level of competition; which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  80. 80.  New Thinking:  Assumption challenged as other markets have developed in their ability to produce global innovations.  As an example, “Skype”, a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley). Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  81. 81.  New Thinking:  Based on this new understanding of how innovations can come from anywhere, companies are attempting to capture worldwide knowledge like never before. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  82. 82.  New challenges:  The challenge for transnational companies is to figure out how to capture and leverage this worldwide knowledge base.  If they can do this effectively, this is one of the main sources of competitive advantage that a transnational company will have over its international, global, or multinational competitors. Bartlett & Ghoshal, interpreted by Prof. Brian Butler
  83. 83. Sorry 
  84. 84.  In your own words, tell me 5 reasons that international experience is important for your career.  (“international experience” could be = travel, or internships, or study abroad, etc)
  85. 85.  Read this article:  http://epocanegocios.globo.com/Revista/Common/0,, EMI131166-16380,00-O+TRABALHO+E+PLANO.html  “O trabalho é plano” Cada vez mais cedo, jovens executivos constroem sua carreira em diferentes países dos cinco continentes para conquistar vivência em outros mercados e culturas. Entenda essa nova geração global e o que as empresas têm a ganhar com ela Por Ivan Padilla e Marcos Todeschini  Homework: read, and then think... In your own words, tell me 5 reasons that international experience is important for your career.
  86. 86. http://www.youtube.com/watch?v=UF8uR6Z6KLc

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