2. Learning outcomes
• Should the company go international?
• Do countries/markets differ in their
competitiveness? Which countries to enter?
• What entry modes are available?
• What options are there in
international strategy?
5. Drivers of Internationalisation
Drivers of internationalisation source: Adapted from G. Yip, Total Global Strategy II, Financial Times Prentice Hall, 2003, Chapter 2
8. COMPETITIVE DRIVERS
(in context of Globalization as a worldwide integrated strategy)
INTERDEPENDENCE BETWEEN COUNTRIES:
Demand variation in one country can have a knock-on effect on sales
in another country (developed vs. emerging countries)
COMPETITOR’S GLOBAL STRATEGIES:
Globalised competitors may cross subsidize and create pressure
9. GOVERNMENT DRIVERS
TRADE POLICIES
TECHNICAL POLICIES
HOST GOVERNMENT POLICIES
INDIA’S EXPORTS
•Petroleum products,
•gems and jewellery,
•Pharma products,
•transport equipment,
•machinery and
•readymade garments
TAX HAVENS: Switzerland, Singapore,
Cayman Islands, Mauritius, British Virgin
Islands, Cook Islands
15. Selecting the country/market to enter
• Market attractiveness (PESTEL & CAGE)
• Likelihood and extent of defending
company’s reaction
• Clout of defending company
16. Economic Factors: Monetary and Fiscal policies,
exchange rates, economic development, type of
economic system.
Technological Factors: Regulations on technology
transfer, information flow, infrastructure, patent and
trademark protection
Political/Legal Factors: Form of government, tariffs,
protectionist sentiment, terrorist activity, legal system,
government’s attitude toward foreign firms, employment
laws
Social/Cultural Factors: beliefs, values, attitudes,
opinions, lifestyles, human rights, literacy levels,
language, social institutions, skill level of the workforce
PESTEL
17. CAGE FRAMEWORK
Cultural
distance
Administrative and
political distance
Geographic
distance
Economic/ wealth
distance
CULTURAL DISTANCE
•Differences in language,
ethnicity, social norms
•Basically from managerial
perspective, not customer
ADMN & POLITICAL DISTANCE
•Usually shared colonial past
fosters similar adm & pol
traditions
•Tolerance towards Corruption
•Transparency in dec. making
GEOGRAPHIC DISTANCE
•Size, sea access, quality
of communication infra
•Natural or political
barriers despite proximity
ECO/WEALTH DISTANCE
•Cos. from rich,
developed countries usu
concentrate on elite mkts,
with required infra
18. Cross-cultural Comparison – US vs. China
Source: M. Javidan, P. Dorman, M. de Luque and R. House, ‘In the eye of the beholder: cross-cultural lessons in leadership from Project GLOBE’, Academy of Management
Perspectives, February 2006, pp. 67–90 (Figure 4: USA vs China, p. 82). (GLOBE stands for ‘Global Leadership and Organizational Behavior Effectiveness’.)
19. How will competitors retaliate?
Source: Reprinted by permission of Harvard Business Review
23. STRATEGY OF SIMPLE EXPORT
• Concentration of activities (esp.
manufacturing) in country of origin
• Loosely coordinated marketing of pr/ser,
usually through independent agents in
different markets
• Pricing, packaging, distribution & even
branding determined locally
• Strategy used when co. has strong location
based advantages
24. MULTIDOMESTIC STRATEGY
• Loose coordination but dispersion of
activities esp. manufacturing & product
development
• Not exported, but produced in various
countries
• Each market treated independently
• Local needs given priority
• Used when economies of scale cannot do
not exist & needs vary between countries
25. GLOBAL STRATEGY
• Existence of homogeneous needs across
markets
• High developmental costs, esp. R&D
• Economies of scale exist in production,
logistics &/or marketing
• Each activity in value chain is based on
locational advantages
• Used when company enjoys high level of
product differentiation
Design: Germany; Advtg: UK; Components: Japan; Assembly: S.Korea
26. COMPLEX EXPORT /
TRANSNATIONAL STRATEGY
• Localised activities & coordinated
marketing
• Economies of scale benefits in
manufacturing & R&D but branding &
pricing are centralized at HQ
• Used by True MNCs
• Tata Sons and Starbucks use this strategy
27. Amount of Commitment, Control, Risk and Profit Potential
Licensing Exporting Franchising
Contract
Manufacturing
JV
and
Strategic
Alliances
Foreign
Direct
Investment
Least Most
Entry Strategies
28. Motivations for Partnerships
1. Generate scale economies
2. Gain access to strategic markets
3. Overcoming trade barriers
4. Use excess capacity
5. Gain access to low-cost
manufacturing capabilities
30. Exporting
Advantages
• No need for
operational facilities
in host country
• Economies of scale
in the home country
• Internet can facilitate
exporting marketing
opportunities
Disadvantages
• Lose any location
advantages in the
host country
• Dependence on
export intermediaries
• Exposure to trade
barriers
• Transportation costs
31. Joint Ventures and Alliances
Advantages
• Shared investment
risk
• Complementary
resources
• Maybe required for
market entry
Disadvantages
• Difficult to find good
partner
• Relationship
management
• Loss of competitive
advantage
• Difficult to integrate
and coordinate
32. Licensing
Advantages
• Contractual source
of income
• Limited economic
and financial
exposure
Disadvantages
• Difficult to identify
good partner
• Loss of competitive
advantage
• Limited benefits from
host nation
33. Foreign Direct Investment
Advantages
• Full control
• Integration and
coordination possible
• Rapid market entry
through acquisitions
• Greenfield
investments are
possible and may be
subsidised
Disadvantages
• Substantial
investment and
commitment
• Acquisitions may
create integration/
coordination issues
• Greenfield
investments are time
consuming and
unpredictable
36. Hurdles in implementing a
successful international strategy
• Inability to truly recognize the impact of a
key factor in the external environment
(PESTEL)
• The defender’s clout is underestimated
• Change in government policy might cause
seizure/abrupt end of foreign operations
• Synergy between partners may be difficult
due to insurmountable cultural differences
