902 class 3


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Class 2 July 8

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902 class 3

  1. 1. Wealth in 2015<br />DouglasReid<br />dreid@business.queensu.ca<br />@douglasreid<br />Internationalization and Global Strategy<br />#mbus902<br />
  2. 2. Population in 2015<br />Source: Worldmapper.org<br />
  3. 3.
  4. 4. Administrivia<br />Breaks at 345, 515 PM (Kingston time)<br />Slides at slideshare.com (search for MBUS902) and on portal – after class<br />Twitter hashtag #mbus902<br />Agenda<br />Quick recap<br />Internationalization - process<br />Rationale<br />Attractiveness<br />Mode<br />Course stuff<br />
  5. 5. The Value Chain<br />
  6. 6. Customer <br />willingness to pay<br />Strategy<br />Cost of delivering <br />what the customer buys<br />
  7. 7. Four types of distance matter in IB<br />Attributes Creating Distance<br />Source: Ghemawat, 2001<br />
  8. 8. Distance Difference  Cost  Risk<br />
  9. 9. Liability of foreignness<br />
  10. 10. Firm-specific advantage<br />
  11. 11.
  12. 12. Internationalization Process<br />Why<br />Where<br />What<br />Locational attractiveness<br />How<br />
  13. 13. Why go abroad?<br />Globalization rests on the multinational’s ability to exploit know-how and expertise gained in one market elsewhere at lower cost.<br />Michael Porter, <br />Competition in Global Industries: A Conceptual Framework<br />
  14. 14. ADDING Helps Answer “Why?” <br />Adding volume (growth)<br />Decreasing costs<br />Differentiating (increasing WTP)<br />Improving industry attractiveness (bargaining power)<br />Normalizing (optimizing) risk<br />Generating knowledge (and other resources, capabilities)<br />Source: Ghemawat<br />
  15. 15. Resource seekers<br />Source: Dunning<br />
  16. 16. Market seekers<br />Source: Dunning<br />
  17. 17. Efficiency seekers<br />Source: Dunning<br />
  18. 18. Strategic Asset Seekers<br />Geely FC-1(Source: www.leblogauto.com)<br />Volvo XC90 (Source: www.autospectator.com)<br />Source: Dunning<br />
  19. 19. Does the company have<br />the right attributes and skills?<br />
  20. 20. Available alternatives<br />Global forest inventory, 2000 worldmapper.org<br />
  21. 21. Deciding to internationalize<br />Value ADDING possible<br />Reason / motive / need<br />Skills available<br />Lack of better home country alternatives<br />
  22. 22. Increasing attention <br />given to defining <br />attractiveness<br />
  23. 23. What makes a location attractive?<br />
  24. 24. Relate to the Motivation for Internationalizing<br />Resources (inputs)<br />Markets<br />Efficiency<br />Strategic assets<br />Others?<br />
  25. 25. What’s attractive here?<br />
  26. 26. Diamond of National Competitive Advantage<br />
  27. 27. Clusters<br />
  28. 28. The new geography of prosperity<br />
  29. 29. Government <br />and social <br />advantages<br />Natural <br />advantages<br />Available <br />alternatives<br />Entrant <br />characteristics,<br />preferences and <br />choices<br />
  30. 30.
  31. 31. Many patterns of trade are centuries old<br />
  32. 32. Source: New Scientist, 2007<br />
  33. 33. Government,<br />social and economic advantages<br />
  34. 34.
  35. 35. A good place to start a business…<br />
  36. 36. Entrant characteristics, <br />preferences, and adaptations<br />
  37. 37. Characteristics (1)<br />
  38. 38. Characteristics (2)<br />
  39. 39. Preferences<br />Addressable Market: 510M <br />Subscribers: 93M<br />
  40. 40. Choices: Aggregation (scale)<br />
  41. 41. Choices: Adaptation (go local)<br />Artist: Liu Bolin<br />
  42. 42. Choices: Arbitrage <br />(exploit difference)<br />
  43. 43.
  44. 44. What effect can time…<br />…exert upon <br />attractiveness?<br />
  45. 45. What?<br />Can VC be fragmented?<br />Can fragmented VC be controlled?<br />Cost of re-location?<br />Competitive risks?<br />FSA leverage with new location?<br />Effect on WTP / cost?<br />
  46. 46. What Activities?<br />Moderately<br />attractive<br />Most attractive<br />Low<br />Required degree<br />of local<br />adaptation<br />Moderately<br />attractive<br />Least<br />attractive<br />High<br />High<br />Low<br />Expected payoff from going international<br />Source: Gupta and Govindarajan<br />
  47. 47. The Value Chain<br />Control – mechanism and cost<br />Capital required<br />Experience in country, nearby<br />
  48. 48. Assuming compliance with local rules…<br />…and a cost-benefit calculation…<br />What are the big drivers <br />of mode choice?<br />
  49. 49. Mode<br />Escalating commitment<br />Wholly-owned<br />subsidiary<br />Level of <br />Control <br />over <br />Foreign<br />Activities<br />Joint venture<br />Franchising<br />Licensing<br />Export through agent<br />Occasional export<br />Resources Committed to Foreign Market <br />Source: Bartlett and Ghoshal<br />
  50. 50. Mode: Closest, First<br />Attributes Creating Distance<br />Source: Ghemawat, 2001<br />
  51. 51. Export<br />
  52. 52. Export<br />Why<br />Low cost means of internationalization<br />Existence of market entry barriers prevents direct investment<br />Low sales potential in host market<br />May be high political risk<br />How<br />Usually, first order is unsolicited (“e” raises likelihood)<br />May be supported by host country sales agent or rep<br />Pros<br />Cost effective, especially for small firms<br />Cons<br />Low returns<br />Vulnerable to host country domestic competitors<br />Relatively little useful learning about host market potential<br />
  53. 53. Licensing<br />
  54. 54. Licensing<br />Why<br />Insufficient capital to enter direct<br />Codifiable IP (a valuable intangible asset)<br />Great geographical distance to host country market<br />Some adaptation required for host country consumption<br />How<br />Through partner who has manufacturing / sales capabilities<br />Royalty and licensing fee negotiated<br />Pros<br />Return on IP (new revenue stream)<br />Cons<br />IP dissipation (create competitor)<br />Governance and monitoring costs reduce profits<br />Relatively little useful learning about host market potential<br />
  55. 55. Joint venture<br />
  56. 56. Joint Venture<br />Why<br />May be only way to enter market<br />Attractive locational advantages -- high sales potential, low political risk, culturally proximate, partner with valuable IP<br />How<br />“Parents” A and B form “child” C, a host-country incorporated entity with own assets, management<br />Pros<br />Tremendous opportunity to learn about market potential<br />Greater returns, usually, than export or licensing<br />Cons<br />Cost of expatriate management ($$$ and career path)<br />Shared control<br />IP dissipation, risk of creating powerful competitor<br />Exit venture may mean exiting market<br />
  57. 57. Wholly-owned subsidiary - Greenfield<br />
  58. 58. WOS – Greenfield<br />Why<br />Unsatisfied demand in host market (growing market)<br />Sufficient knowledge about host market to enter confidently<br />Low political risk<br />Lots of resources<br />Market leader, or strongly advantaged in some key way<br />Ability to customize for host market exists (or isn’t needed)<br />How<br />Transfer money, resources, management to new operation<br />Integrate into global production system<br />Pros<br />Keep all returns<br />Relatively low IP dissipation<br />Possibly, lower risk of retaliation by incumbents<br />Cons<br />New facility is “sunk cost” – changes negotiating power with host country government<br />Cost of expatriates ($$$ and career path)<br />Need to hire host country nationals (employment risk) <br />Need to set up systems to comply with host country laws<br />
  59. 59. Wholly-owned subsidiary – Acquisition<br />
  60. 60. WOS – Acquisition<br />Why<br />Attractive candidate facility, or can be upgraded at reasonable cost<br />Host country demand slowing or flat<br />Low investment controls<br />Low political risk<br />More favourable cost / benefit than greenfield entry<br />Window of opportunity<br />How<br />M&A with local advisors (legal, accounting, GR)<br />Pros<br />Acquire going concern (lower set-up risk)<br />Existing relationships, systems, employees, revenues<br />Few approvals (usually) beyond acquisition<br />May block competitor from buying target<br />Faster time-to-value<br />Cons<br />Administrative heritage is inertial force that may resist change<br />Cost of expatriates ($$$ and career path)<br />Loss of key host country staff if career path blocked<br />Overpayment<br />“Skeletons in the closet”<br />
  61. 61. In full…<br />
  62. 62. Let’s sum up<br />
  63. 63. Assignments 3 and 4<br />3. 10-15 minute <br />presentation and <br />worked example of <br />decision making tool<br />(class 6)<br />4: Final version of decision <br />making tool, plus descriptive<br />write up, user instructions<br />
  64. 64. What is a decision making tool in our context?<br />Decision Foci<br />Whether to internationalize<br />Part of value chain to internationalize<br />Where<br />How<br />Tool forms<br />Conceptual model (e.g. 5 forces)<br />Questionnaire (e.g. Suutari)<br />Decision tree<br />Foci * forms = 12 combinations…<br />
  65. 65.
  66. 66. Key Evaluative Criteria<br />Reflects underlying ideas and theory correctly<br />Usefulness to a non-expert<br />Ability of a non-expert to use it<br />Breadth (i.e., beyond a single industry setting)<br />Hooked to other ideas (what precedes/follows you?)<br />
  67. 67.
  68. 68. Assignment 5<br />Reflective memo<br />
  69. 69. What is working well?<br />What can be improved?<br />Steps: <br />Discuss in team, pick top 3 for each<br />Email me by Friday, July 15<br />I’ll collate / redistribute to class (no edits)<br />Comment and commit<br />
  70. 70. Virtual office hours<br />Sunday, July 10<br />12:00 – 2:00 PM<br />http://queensbusiness.adobeconnect.com/douglasreid/<br />Backup will be Skype: dreid150<br />