Different is the key-word here. These differences either is the demand-side or the supply side are the opportunities for building global companies
Horizontal MNC(product side)- Demand-side scope economies. Selling original domestic products in new markets. Vertical MNC-Supply-side scope(factor cost adv). Exploit a valuable resource from within a new market. Ex US IT firms in INDIA
Two companies' cooperative production of a joint output involves numerous time lags and intermediate deliveries. When price negotiation between a monopoly buyer and seller is difficult and they can prevent each other from producing the output The value of the knowledge product is known but the marginal cost of producing the output is almost zero. The seller of the proprietary knowledge is unable to reveal the true value of knowledge without, in effect giving it away for free Retaining the market power and keeping off competitors.
Global Strategy Aparna Priyadarshini AIM, Manila ,Cohort 5 Date 23 rd Feb, 2010
International Strategy <ul><li>Scope : Across all geographical markets </li></ul><ul><li>Pre-requisites : A firm has a competitive advantage in its core business in the domestic market </li></ul><ul><li>Why a different strategy for going global? </li></ul><ul><li>The following factors which influence business are different across </li></ul><ul><li>geographies: PESTEL Framework </li></ul><ul><li>P- Political T-Technological E-Economical E-Ecological </li></ul><ul><li>S-Social L-Legislative </li></ul>
Strategic Trade-off and Choices Homogeneity Competitive Advantage Strategic Choice Static Arbitrage : Use the differences as opportunities to create horizontal and vertical Multinationals To sell Standard or Customized product? Scale Of Operations Global efficiency : Large organizations can treat the world as a single economy and sell standardized products. E.g. Japanese firms Where to compete? Prioritize the allocation of resources in the existing and new markets. Volatility Innovation and Dynamic Arbitrage : Continuously re-optimizing firm’s activities as per the change in dynamic factors like currency value etc. Where to locate activities? The choice is about both the number of site and specific location of each site.
Three A’s of Global Strategy The Three A’s of Global Strategy Adaptation “ One size does not fit all” Modifying the existing business model to foster success in a foreign environment. Ex MTV, Pizza Hut, KFC Aggregation “ One for all, all for one” Finding similarities in national markets and producing a standardized product for them. Ex Hyundai Heavy industries Arbitrage “ Difference Counts” Taking advantages of the various differences in factor markets across countries. Ex Manufacturing in China
In-house versus Market When should organizations own their activities in the foreign market? <ul><li>Joint production has transfer pricing problems. </li></ul><ul><li>Monopoly buyer, monopoly seller. </li></ul><ul><li>Marginal cost of producing the output is zero. </li></ul><ul><li>True value of proprietary knowledge is unknown. </li></ul><ul><li>Retaining market power </li></ul>
When should companies choose to enter into Local Partnership? <ul><li>To acquire market knowledge that </li></ul><ul><li>foreign investors cannot easily purchase </li></ul><ul><li>Control a key segment of the local </li></ul><ul><li>value chain that would otherwise block entry. </li></ul><ul><li>To access political connections and inexpensive </li></ul><ul><li>resources (such as finance and technology) that can </li></ul><ul><li>be acquired only from local partners. </li></ul>
The Journey Model for International opportunity
The dynamics of Emerging markets <ul><li>The RIPE Model: </li></ul>Exploit the understanding of the product market. E.g. Jollibee Build on familiarity with resource markets, like factors of production. E.g.- Indian IT industry Treat Institutional voids as opportunities and build their business around filling these
Innovation with customer focus extrapolated for global success - M&M success mantra <ul><li>Anand Mahindra’s take on Globalization </li></ul><ul><li>There has to be an internal logic for each company to become global operation. </li></ul><ul><li>Balance between domestic and international market </li></ul><ul><li>Intellectual capital-culture is important. </li></ul><ul><li>Strategy is a function of industry, country, the price and the cultural fit. </li></ul><ul><li>Invest when the time is right. </li></ul>
Recommendations <ul><li>Strike a balance between domestic sustainability and global expansion. </li></ul><ul><li>Decide where to compete and where to collaborate. </li></ul><ul><li>Centralized strategy formulation but decentralized execution. </li></ul><ul><li>Keep an eye on the strategic health rather than just focusing on short-term financial health. </li></ul>