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The document discusses global strategy and international business. It defines global strategy as business strategies that serve consumers throughout the world by maximizing company performance across marketing, organization theory, business strategy, and international management. Effective global strategies consider differences between countries to gain competitive advantages from factors like labor costs, market sizes, and flexibility. They also manage risks and promote innovation and learning across international operations.

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CHAPTER 1 FOUNDATION OF GLOBAL STRATEGY THE IMPORTANCE OF GLOBAL STRATEGY FOR INTERNATIONAL FIRMS 1. Many companies started to globalize their business strategies to gain competitive advantage and due to more barriersto trade beganto collapse. 2. When your companyoperatesinternationally,itwill engage in form of business such as exporting and importing that differfromthose inwhichit engagesdomestically. 3. Physical, social, and competitive conditions differ between countries and influence the optimum ways to perform business. GLOBAL STRATEGY AND ITS DEFINITION - The business strategies engaged by the businesses, companies, or firms operating in a global business surroundingandservingconsumersthroughoutthe world. - Encompassthe variousdisciplinesof marketing,organization theory, business strategy, and international management and centersonmaximizingcompanyperformance. FUNDAMENTAL ISSUES IN GLOBAL STRATEGY AND THE EFFECTS OF GLOBALIZATION 1. The absence of an organizing framework - To integrate the different perspectives in GS, overall framework must consider the costs and benefit present in the differentstrategicalternatives. - Identify the resources to achieve those goals and then proceed to analyze it, integrating both and come up with content-richGS. 2. Achieving competitive advantage - Developedbytakingstrategicmeasurestoreachthe diverse and often, conflicting goals of the organization in the optimum way, the organization must achieve efficiency and be able to innovate and adapt to change by developing internal capabilities. - The strategicmissionof managinggloballyistouseeveryone of the three sources of competitive advantage to optimize effectiveness, risk and learning all together in a global business. 3. World Trade Organization (WTO), Foreign Direct Investment (FDI) andIntellectualPropertyRights(IPR). - Weaknesses in the way that WTO has been structured by inefficiently commanding the economy of the weaker nations by working in a shrouded way in the name of trade liberalization. SOURCES OF COMPETITIVE ADVANTAGE FROM A GLOBAL STRATEGY 1. Economiesofscale fromadmittance tomore customersand markets. Exploit another country’s resources – labor, raw materials. 2. Extendthe product of life cycle – olderproductscanbe sold inlesserdevelopedcountries. 3. Operational flexibility – shift production as costs, exchange rates,etc. change overtime.
SUMANTRA GHOSHAL OFINSEADproposeda framework: 1. Achieving efficiency in current operations Sources of competitive advantage National differences Benefitingfromdifferencesin factor costs – wages and cost of capital. Scale Economies Expanding and exploiting potential scale economies in each activity. Scope Economies Sharing of costs and investments across products, marketsand businesses. 2. Managing risks Sources of competitive advantage National differences Managing different kinds arisingfrommarket or policy- induced changes in comparative advantages of differentcountries. Scale Economies Balancing scale with strategic and operational flexibility. Scope Economies Portfolio diversification of risks and creation of options and side-bets. 3. Innovation and learning Sources of competitive advantage National differences Learning from societal differences in organizational andmanagerial processesand systems. Scale Economies Benefiting from experience- cost reduction and innovation. Scope Economies Shared learning across organizational componentsin different products, markets or businesses. SCALE ECONOMIES - Has beenknownforlongtime asa major factorin increasing profitability and contributing to a firm’s other financial and operational ratios. - Is about the benefits gained by the production of large volume of a product. - May benefit international firms in gaining competitive advantage from the perspective of internal and external economiesof scale. SCOPE ECONOMIES - Is relatively a new approach to business strategy, and is heavilybasedonthe developmentof hightechnology. - Is linked to benefits gained by producing a wide variety of productsby efficientlyutilizingthe same operations.
COUNTRIES COMPARATIVE ADVANTAGES STRATEGIES 1. CCA would normally depend on factor endowments (land, natural resources, labor, size of populations) and created contributionsthatanationis fortunate enoughtoinherit. MICHAEL E. PORTER – PORTER’S DIAMOND MODEL 1. FACTOR ENDOWMENT / CONDITIONS - A situation in the country relating to the tangible and intangible resources such as knowledge, info structure, infrastructure,natural resources. 2. RELATING AND SUPPORTING INDUSTRY - Relatedtothe presence andabsence of supplierandrelated industriesthatare internationallycompetitive. - Competitive suppliers and related organizations may strengthenresearchandinnovationthatleadtocompetitive advantage. 3. HOME DEMAND CONDITION - HD is particularly critical in shaping the attributes of the companies’products. - The more demanding the home-based customers, the more pressure will be createdforproductinnovation. 4. STRATEGY, STRUCTURE AND RIVALRY - The selectionof appropriate strategyplaysimportantrole in determiningcompetitive advantage inaglobal marketplace. - The presence of domestic competitors as well as local competitors forces firms to become more efficient and innovative and to adopt new technologies and hence can helpfirmsachieve competitiveadvantage onaglobal scale. 4 ELEMENTS THAT LEAD TO A NATIONAL COMPARATIVE ADVANTAGES UNDER DIAMOND MODEL: 1. The availabilityof resourcesandskills 2. Informationthatfirmsuse todecidewhichopportunities to pursue withthose resourcesandskills. 3. The goals of individualsincompanies. 4. The pressure oncompaniestoinnovate andinvest. GLOBAL STRATEGY AND GLOBAL BUSINESS ENVIRONMENT - All organizations blend together with their environments, and this interaction is particularly decisive to crafting strategiesforthe global firm. - Global strategy should incorporate all global and regional issuesastheyeffectstrategyandstrategicmanagement. STRATEGY AND LOCATION - Concerns about cultural, institutional, geographical, economic, technological and developmental distance affect decisions about where and how to sell products, source inputsandresourcesandestablishoperations. - Avoiding hazards and exploiting the benefits of differences betweenlocationsisthe essenceof global strategy. GLOBAL STRATEGY AND EMERGING ECONOMIES - Multinational enterprises from emerging economies are absorbing established firms in industrial nations and may well dominateinternationalmergerandacquisitionactivities inthe near future,whereastraditional globalenterprisesare facingfundamental changesintheirnonmarketstrategies.
TYPES OF INTERNATIONAL STRATEGY 1. INTERNATIONAL STRATEGY 2. MULTIDOMESTIC STRATEGY 3. GLOBAL STRATEGY 4. TRANSNATIONAL STRATEGY Pressure for global integration – standardization (use same strategy). Ex: Coca-Cola (marketing - same around the world) but differentintaste. Pressure for national responsiveness – localization (responding to the national needs).Take considerationstolocal needs.Costmore but benefitgreater. 1. INTERNATIONAL STRATEGY - Adoptedwhentheyaimtoleverage theircore competencies by expandingintoforeignmarket. - Relyonlocal subsidiariestoadministervaluechainsetbythe HQs. Ex: McDonalds, Kellogg’s, Google, Haier, Walmart, Huawei andMicrosoft. A. BENEFITS i. Create value by transferring core competencies and unique productstoforeign businesssectors, where opponentsare unable tocontend. ii. Aids the transfer of skills and ideas from the parentcompanyto subsidiaries. iii. Works well when an organization has core competencies that foreign competitors do not have and when industry conditions do not demand. iv. High degree of global integration or local responsiveness incurs moderate operation expensesyetearnshighprofits. B. LIMITATIONS i. Applying the parent company’s ethnocentric direction across the board to all foreign nations can prove to be setback in dealing with foreign markets. Ex: Google in South Korea and China facingthreatsfromNaverand Baidu. 2. MULTIDOMESTIC STRATEGY - Let the local managersto run the organization. - Unique physical and metaphysical features differentiate national markets. - MultidomesticstrategycallsforHQstodelegate authorityto its foreign subsidiaries. Ex: Johnson & Johnson, Procter & Gamble (P&G). A. BENEFITS i. Delegate authoritytoitsforeignsubsidiaries ii. Highneedforlocal responsivenessandlowneed to reduce costsvia global integration. iii. Minimized political risk given the local position of the company. iv. Lower exchange rate and risk givenreducedthe needtorepatriate fundstothe home office. v. Greaterprestige givenitsnational prominence. vi. Higher potential for innovative products from local R & D. vii. Higher growth potential due to entrepreneurial pursuits.
B. LIMITATIONS i. Customizing products and processes to local marketinevitabilityincreasescosts. ii. Decentralizes control to local managers can collapse the business due to different managementstyle andvalue chaindesigns. 3. GLOBAL STRATEGY - Emphasizes on improving worldwide performance through the sales and marketing of common goals and services with minimumproductvariation. A. BENEFITS i. Emphasize efficient operations and where local responsivenessneedseitherare non-existentor can be neutralized by offering a higher quality product for a lower price than the local substitute. ii. Companiestranslateintocompetitiveadvantage by basingoperationsinthe superiorlocation. iii. The global strategy directs managers’ attention to two absolute production and marketing standards. B. LIMITATIONS i. Countries whose markets demand local responsiveness reduce the attractiveness of the global strategy. ii. The cost sensitivity and standardization bias of global strategy gives MNCs little latitude to adapt value activitiestolocal conditions. iii. Disruptive market changes or product breakthrough can turn a fine-tuned value chain intoa badlyaimedtarget. 4. TRANSNATIONAL STRATEGY - Interconnected consumers, industriesand markets requires an MNC to configure a value chain that can exploit location economiesandcoordinationvalue activities. - Focusonestablishingunique experiencesinlocalmarketand diffuse themthroughoutglobal operation. A. BENEFITS i. Spurs the MNE to differentiate its capabilities from country to country according to prevailing economic,political,legalandculturalconditions. ii. Callsuponmanagersto perfectmethodthatcan take the insightsgainedfromuniqueexperience in local markets and diffuse them throughout global operations. iii. Fine-tuned global integration and local responsiveness. iv. Develop the learning capacity to leverage efficiencies of global integration without ignoringrisingcallsforlocal responsiveness. B. LIMITATIONS i. Difficult to configure, tough to coordinate and prone to performance shortfalls. ii. Difficult to reconcile integration and responsiveness. iii. Developing a network mindset among employees, installing the requisite information
systems and navigating the ambiguity of multi- criteriadecisionsmakingitsexpansive. DRAWBACKS OF GLOBAL STRATEGY 1. Reduce managementeffectivenessinindividual countries 2. Productstandardizationcanresultinproductthatdidn’tfully satisfyconsumer. 3. Using uniform marketing campaign may reduce local adaptation. 4. Integrating competitive moves can further sacrifices revenues, profits or competitive position in individual countries. EMERGENCE OF A NEW TYPE OF GLOBAL CORPORATION 1. Era of “micro-multinationals”– small companies thatare born global andoperate worldwide fromdayone. 2. The emergence of the “metanational” – thrives on the process of seeking out uniqueness that it might exploit elsewhere or that might complement its own existing operations and probably building competitive advantage by uncoveringandtransferringknowledge frommanylocations aroundthe world. 3. Another emerging “cybercorp” – a company that operatesexclusivelyincyberspace andisnotimpactedbythe physical geographyof linesonamap.
CHAPTER 2 MANAGING INDUSTRY COMPETITION INDUSTRY COMPETITION DEFINITION AND OVERVIEW 1. Industry – a group companies that are related in their primarybusinessactivities,i.e.producinggoodsandservices that are similartoone another. 2. Adam Smith(1776), model of “perfectcompetition” – price is set by the “market”, all firms are price takers, and entries and existsare relativelyeasy. 3. Late 1930s, amore practical branchof economics,“industrial organization (IO) economics” – emerged whereby its main feature wasa structure -conduct-performance (SCP)model. 4. Structure – structural qualities of an industry (for example, the cost of entry/exit) 5. Conduct – the company’saction(ex,productdifferentiation) 6. Performance – the result of firm conducts in response to industrystructure,whichcanbe classifiedasaverage,below average and above-average. The model infers that industry structure confirms firm conduct (or strategy), which in turn, determinesfirmperformance. 7. The initial objective of IO economics was not to help firms compete, rather, it was to help policymakers better understandhowfirmscompete in order to fittinglyregulate them. FIVE FORCES FRAMEWORK BY MICHAEL PORTER 1. RIVALRY AMONG EXISTING COMPETITORS 2. THREATS OF NEW ENTRANTS 3. BARGAINING POWEROF SUPPLIERS 4. BARGAINING POWEROF BUYERS 5. THREATS OF SUBSTITUTE PRODUCTS 1. RIVALRY AMONG EXISTING COMPETITORS - The larger the numberof firms,the more rivalrywill exist. - Competitors that have similar size, market influence and productoftenvigorouslycompete witheachother,especially if there isno productdifferentiation. - Happens in commercial enterprisesthat produce high value andluxurygoodsthatare acquiredrarelylike mattressesand motorcycle. - The level of capacity utilization, as new capacity has to be added in large percentages in certain industries, and this bringsaboutintense rivalrye.g.shippingcompanies - Slow industry growth or decline makes competition more desperate,oftenusingnewcompetitive idease.g.fastfood. 2. THREATS OF NEW ENTRANTS - Reputable firmsin industry (incumbents) alsohave a vested interestinkeepingpotential brandnewentrantsout. - Due to the lucrative, above average returns some incumbents gain, new entrants are inspired to enter an industry. - 5 elementslinkedtohighentry barriers: i. Incumbents enjoy scale-based low cost advantages (economiesof scale) ii. Proprietary knowledge – patents, maybe too costly for entrantstoinvestnewthings. iii. Know-how – knowledge and expertise of how to make products and serve customers. New entrants typically are not privy to such knowledge and understandsthe customers. iv. Good access to raw material and distribution channels– supplierswillgivegoodoffers/discounts
to incumbents but not to the new entrants due to newtrack records. v. Real-estate locations – incumbents able to choose and occupy good locations but new entrants maybe forcedto pay higherrentforsimilarlocations. vi. Product differentiation – incumbent manage to build brand equity through advertising and promotionwhichleadtocustomerloyalty. 3. BARGAINING POWER OF SUPPLIERS (BPS) - Is their capability to raise price and/or decrease value of goodsand services. - 4 conditionssupportand leadtostrong bargainingpowerof suppliers: i. If a fewfirmsrule the supplyindustry,theycouldbe the upperhand. ii. BPS increase tremendously if they provide unique, differentiatedproductswithfewornosubstitutes. iii. Suppliers can exercise strong bargaining power if the local firmsare notimportantcustomers. iv. Forwardintegration –as supplierscanincrease their bargainingpowerif theyare willingandabletoenter the focal industry. v. Powerful suppliers can affect the profits of firms in the focal industry.Firmswill havetostrengthentheir own BP by reducing their dependence of certain suppliers. 4. BARGAINING POWER OF BUYERS (BPB) i. Firms in the main industry are essentially suppliers e.g.automobile componentsuppliers. ii. Buyers can expand their bargaining power if products of an industrydo not produce cost savings or add value forbuyer. iii. Buyerscanhave strongBPif theypurchase standard, undifferentiatedproductsfromsuppliers. iv. Economic constraints allow buyers to increase their BP. v. Backwardintegration –buyersmayenhancetheirBP by enteringthe mainindustry. 5. THREATS OF SUBSTITUTES - Substitutesare normallyderivedfromdistinctive businesses that manage to fulfillconsumers’necessitiesandneeds. - If substitutes have better-quality,function and value when contrasted to existing products, they may swiftly come out to draw a hefty size of customers. E.g. E*trade, Ameritrade, and Scottrade vsMerrill Lynch. - Substitutes can also cause critical threats if switching costs are low. E.g. consumers practically do not have to pay additional cost when switching from sugar to artificial sweeteners such as NutraSweet or Equal. Both are readily available atanyretailer. GENERIC STRATEGIES BY PORTER 1. COST LEADERSHIP 2. DIFFERENTIATION 3. FOCUS 4. SPEED
1. COST LEADERSHIP - Many companieswilladopt.Configureandcoordinate supply chain. - Primarily shows that a firm’s value proposition of how to battle successfullyonminimizingcostsandmaximizingprices. - Offering the same product value at a lower price has a propensity to draw many more customers into buying the products. - A cost leader frequently positions its product to target customersfor the mass-marketwithmodestdifferentiation. E.g. Walmart A. STRENGTH i. Low-cost advantages lessen the possibility of pricingpressure frompowerfulbuyers. ii. A low cost producer must find ways to reduce the attractive lookof a substitute product. iii. Cost disparityregularlydescendsovertime. B. WEAKNESSES i. The threat of being outcompeted on costs constantlypresents. ii. Costleadersmayinadvertentlycreate trade-offs that compromise the value that customers perceive in a product when they persistently go all out to cut prices. 2. DIFFERENTIATION - Centersonthe mostproficientmethodtotransferitemsthat clientsobserve asvaluableandspecial. - Differentiators’ would normally target customers in well- definedandsmallersegmentswhoare eagertopaypremium costs. - Customers are willing to pay more if the differentiated products are perceived off having unique features, such as prestige or status symbol,quality,sophistication,andluxury e.g.BMW/AUDI cars, Ritz CarltonHotel andetc. - Different clients = different expectation = different perceptionsondifferentquality. A. STRENGTH i. Competition will be diminished each time a company reinventedanddifferentiateditself.Ex. Mercedes-Benz is not going to compete with Proton. ii. Buyers tend to be not too sensitive to prices especiallyforunique products. iii. It is difficult for new entrants to compete with loyal customersthatgo forspecificbrands. iv. Imitation narrows perceived differentiation, renderingdifferentiationmeaningless. B. WEAKNESSES i. The differentiator may not be able to maintain itsleadershipindifferentiationinthe longterm. ii. The differentiator has to deal with persistent effortsof aggressive imitation. 3. FOCUS STRATEGY - Was drivenbythe needsof a specificsegmentorniche of an industry. The segment or niche by type of customer, geographical marketorby productline. - This segment is so unique and usually is served by a much focusedcompany.Mostcompetitorschoosetostayoutfrom thissegment. - A focused firm is either a specialized differentiator or a specializedcostleadere.g.Ferrari,AirAsia,etc.
4. SPEED - Has started to be noticed by many businesses particularly those that wanted to foray into a foreign market and compete ata global scale. - Explainsthe time lineneededforafirmtomarketitsproduct or servicesandreachthe customers. - Ex. MP3 players andiPod - Speed-BasedStrategies: - Rapid responses to customer request or market and technological changes are important strategy for a firm to gaincompetitive advantage. i. Speedisa part of differentiation ii. It involvesmore thanjustbeingunique iii. Consistsof providingarapidresponse toa customer demand on current products, acceleration new- product development or enhancement, adjusting productions processes promptly and swiftly making decisions. iv. Has been seen as a guaranteed promise for companiestoedge upagainsttheircompetitors. - Competitive advantages: A. Customer responsiveness i. Many consumers have encountered plenty of delays,frustrationandhassle whendealingwith variousbusinessesfromtime totime. ii. Consumerswantrapidresponse andsolutionsto mistakes or problems. Communication is important. B. Product development cycle i. Japanese automakers are well known as championsinreducingthe time takentomarket a product and shortening the product development cycles by focusing strongly on the concepttime (Justintime -JIT) ii. It normally takes quite sometime to conceive, prototype, produce and market totally new vehicle. PRESSURES FOR GLOBAL INTEGRATION 1. GLOBALIZATION OF MARKET - Due to convergence of consumers’ tastes, preferences, lifestylesandglobal buyingpatterns,strategies,suggestthat consumersworldwideseekglobal productswhethertheyare Apple iPods,Samsungplasmascreens,Facebookconnections, Starbucksespressos, Google searchersorZara blouses. 2. EFFICIENCY GAINS OF STANDARDIZATION - Standardization is the handmaiden of globalization, encouragingsupplyconditionsthatproduce volumesof low- cost, highqualityproducts. - That is standardization is the push dynamic that converge consumerpreferences. THE BENEFITS OF STANDARDIZATION TO THE VALUE CHAIN 1. CONFIGURING ADVANTAGES i. Minimizes differences in operating procedures amongvaluesactivities. ii. Providesstandardstoimprove qualityandreliability of value-chainperformance. iii. Drives down the production costs of higher-quality products. iv. Increase competition among suppliers in providing inputsor supportservices.
v. Simplifies agreements with join-venture partners and alliance members. 2. COORDINATION ADVANTAGES i. Optimizes routinescoordinationprocedures ii. Improves communication by lowering the transaction costs of information gathering, negotiatingandmarketplanning. iii. Promotes systematic dissemination of ideas and highlightsopportunitiesforcollaborations. iv. Facilitates cooperation among dispersed units by settingstandardsof credible knowledge. PRESSURES FOR LOCAL RESPONSIVENESS 1. CONSUMER DIVERGENCE - Divergences in consumer preferences across countries necessitate locallyresponsive value chains. - Local responsivenesstakesinmanyforms. - Ex. Adapting marketing practices to consumption patterns (AUS – large package in size, JPN – smaller size, single-unit size inpoorercountries) - Adaptingtothese sortsof local preferencesspurscompanies tosacrifice degreesof globalstandardization,aresponsethat requiresfine-tuningthe configurationof valuesactivities. 2. HOST-GOVERNMENT POLICIES - Differences in policies among host-country governments contribute togreatvariabilityinpolitical,legal and economic situationsinvariousmarkets. - Policiessuchastrade protectionism,local contentrules,and national product standards require some degree of local responsiveness and counterbalance the policy shifts toward privatization, economic freedom, legal uniformity, and deregulationthatencourage standardization.
CHAPTER 3 LEVERAGING RESOURCES AND CAPABILITIES UNDERSTANDING RESOURCES AND CAPABILITIES 1. Most firms have a bundle of productive resources and capabilities. 2. Resources can be defined as tangible and intangible assets that a firmcan utilize tostrategize itsbusiness. 3. The best way to measure them is through organizing them into 4 categories: i. Financial resources and capabilities – the company financial reliability for example generating internal fundsor raisingexternal capital. ii. Physical resources and capabilities – location of plants, offices, and equipment and access to raw materialsanddistributionchannels. iii. Technological resourcesand capabilities– abilityto invent and create patterns, trademarks and copyrights. iv. Organizational resourcesandcapabilities–planning, command, control, and structure systems in an organization. EXAMPLE OF INTANGIBLE RESOURCES AND CAPABILITIES 1. Human – typically are able to generate knowledge, trust be able toobserve talentandunderstandorganizational culture. 2. Innovation– skillsandassetsforacompanytogenerate new ideasthroughresearchand developmentandinventingnew waysof doingthings. 3. Reputational resourcesandcapabilities –companyabilityto develop and leverage its reputation and image as the best place to work or the best socially responsible company. Reputations is important indicator that signal a company workculture and competitivenessprocess. WHAT IS THE VALUE CHAIN? - The set of linked value-creating activities the company performstodesign,produce,market,distribute andsupport a product. - Value-chain analysis helps managers understand the behavior of costs and existing and potential sources of differentiation. - Separates a firm into: i. Primary activitiesthatcreate anddelivertheproduct. ii. Support activitiesthataidthe individualsandgroups engagedinprimaryactivities. A. PRIMARY ACTIVITIES OF THE VALUE CHAIN i. Product design – the basis of the firm’s advantage that sets the function,characteristicsandaesthetics of the productor process. ii. Operations – activities that transform inputs into finished products, issues of concern include raw material procurement,sourcingcomponents,supply chains, plant location, manufacturing process, parts productionandassembly. iii. Marketing – informing buyers and consumers about products and services. Encouraging consumption by applying the marketing mix, developing sales force, devising packaging scheme, definingthe brandandadvertising.
iv. Outbound logistics – the task of moving the finished products from operations to wholesalers, retailers or the final consumers. Issues of concern include demand chains, channels, inventory, warehousingandtransportation. v. Service – customer support in term of installation, after-salesservice,complaintshandling,andtraining. Key activities include warranty, captive or independent services networks, market coverage and speedof response. B. SUPPORT ACTIVITIES OF THE VALUE CHAIN i. Material and equipment – management of the procurement, transportation, storage, and distributionof materialsandequipmentnecessaryto conduct primaryactivities. ii. Human resources management – recruiting, developing,motivatingandrewardingtheworkforce of the company.Supervisinglabor-relationsactivities. iii. System and solutions – managing information processing and the development of specialized knowledge of primary activities. Issues involve management information system and process automation, along with integration of relevant technologies such as telecom, wireless and cloud systems. iv. Infrastructure – general management functions that enable day-to-day operation in the company. Activities include accounting and finance, legal and regulatoryaffairs,safetyandsecurity,qualitycontrol, and otheroverheadfunctions. CONFIGURATION: USING THE VALUE CHAIN - The way in which managers arrange the activities of the serviceslikecall centers,applicationprocessingandfinancial consolidation, can be digitizedand hence, located virtually anywhere. - Value chains identifythe format and interactions between differentactivitiesof the company. A. MACRO COST FACTORS i. Differences in wage rates, worker productivity, inflation rates, and government regulations – among the host factors that shape macroeconomics – means costs conducting activitiesvaryfromcountryto country. B. CLUSTER EFFECTS i. Industry cluster – a system of businesses and institutionsengagedwithoneanotheratvarious levels. ii. A particularindustrygraduallyclustersmore and more related value creation activities in a specificlocation. iii. Are geographic concentration of competing, complementary or interdependent firm and industries that do business with each other and share overlapping needs for talent, technology and infrastructure. C. LOGISTICS i. Entails how companies obtain, produce and exchange material and services in the proper place and in proper quantities for the proper value activity.
ii. Conductingbusinessacrossthe worldopensthe potential forhightransactioncosts. iii. Minimizing exchange expense by efficiently configuring the location of the value activities is a source of competitiveadvantage. D. DIGITIZATION i. Involves converting an analog product into a stringof zerosandones. ii. Productslike software,music,andbooksas well as services can be digitized and hence, located virtuallyanywhere. iii. Equipped with networked computers, workers can move goods and services anywhere in the worldat a negligible costandcomplication. E. ECONOMIES OF SCALE i. A situationwhereinafirmdoublesitscumulative output yet total cost less than doubles due to efficiencygains. ii. Reductions in the unit cost of a product result from the increasing efficiency that comes with largeroperations. F. BUSINESS ENVIRONMENT i. Companies normally try to configure value chains whether to access or avoid particular countrybasedon itsbusinessenvironment. ii. Companies would weigh various opportunities to streamline value activitiesand improve cost competitiveness. COORDINATION: USING THE VALUE CHAIN - Itisthe waythatmanagersconnectthe activitiesof thevalue chain. - In a global context: the specification of how pieces move aboutthe global game board. - The essence of management and is implicit and inherent in all functionsof management. - Several factor influence value chaincoordination: 1. NATIONAL CULTURES 2. LEARNING CURVE 3. OPERATIONAL OBSTACLES 4. SUBSIDIARY NETWORKS 1. NATIONAL CULTURES i. The globalizationof acompany’svaluechain –design, Finland, inputs sourced, Brazil, production, China, distribution,USA,services,Mexicopressesmanagers to understand how foreign cultures influence coordination. ii. Also impose hurdles in coordinating a transaction fromone stage of the value chainto another. iii. Units anchored in individual versus collectivist cultures may disagree over information sharing or collaborationresponsibilities. 2. LEARNING CURVE i. Asmanagersuse andimprove coordinationpractices, their increasing proficiency improves the performance of the value chain. ii. Managers learn by recurring experiences how to transfer best practice from country to country,
therebygaininginsightsofthe valuechainasawhole insteadof a collectionof parts. iii. Ex.AnMNEmayhave factoriesindifferentcountries, such as Japan,Mexico whichmanufacture the same productapplydifferentproductionphilosophies. 3. OPERATIONAL OBSTACLE i. Operating internationally inevitably runs into communication challenges because of time zones, differinglanguagesandambiguousmeanings. ii. Companies rely on browser-basedcommunications methodstocoordinate thehandoffsfromlinktolink. iii. The thinking goes that electronically linked producersandretailerscanlowercoordination costs throughoutthe value chain. iv. Electronic transactions boost efficiency by reducing intermediary transactions and the associated unneededcoordination. 4. SUBSIDIARY NETWORKS i. The growing prevalence of social networks provides perspectivesformanagers to betterunderstandthe dynamicsof theirsubsidiarynetwork. ii. Managers coordinate the value chain so that it enables efficient transactions and ideally fortifies core competenciesthroughoutthe global network. iii. The advent of social networks, such as LinkedIn, Facebook. iv. Network dynamics show that workers are more inclined to communicate and collaborate with simultaneously contributing and participating in coordinatingthe value chain. THE VRIO FRAMEWORK - Barneyand Hesterly (2006),describe the VRIOframeworkas a good tool to examine the internal environmentof afirm. - VRIO stands for 4 questionsone must ask about a resource or capability to determine itscompetitive potential: 1. THE QUESTION OF VALUE - Does a resource facilitate a firm to develop environmental opportunity,and/orneutralizeanenvironmentalthreat? 2. THE QUESTION OF RARITY - Is a resource presently ruled by only few competing firms creating dominant power of suppliers? Are the resources used to make the products/servicesor the product/services themselvesexceptionallyuncommonandirreplaceable? 3. THE QUESTION OF IMITABILITY - Do firms without a resource stumble upon difficulty on a coast in obtaining or developing it? Will companies find it difficulttoimitate the products/services? 4. THE QUESTION OF ORGANIZATION - Are a firm’s other policies and procedures organized to maintain the utilizationof its valuable, rare, and costly-to- imitate resources?
CHAPTER 4 EMPHASIZING INSTITUTIONS, CULTURES AND ETHICS UNDERSTAND THE CONCEPT OF INSTITUTIONS, THEIR FUNCTIONS AND ABILITIES TO REDUCE UNCERTAINTY 1. Defined as regulatory, normative, and cognitive structures and activities that provide stability and meaning to social behavior. 2. Institutions = a platform to set the ground rules to govern the interactioninanorganization. 3. Organization = people (employees) who are pursuing commondeterminationinbusinessorgovernment. 4. An institutional framework that governs individual and firm behavior is made up of formal institutions and informal institutions. A. FORMAL INSTITUTIONS i. Iswhere the governmentenactandenforce laws, regulations and rules e.g. copyright laws, IPR, competitionpolicyandcontractlaws. ii. Business must abide with these rules and regulation. iii. Any violation of government laws is subject to actionthat leadsto prosecution. B. INFORMAL INSTITUTIONS i. Not a pre-establishedsetof rulesthatindividual and firm must abode but it is more of norms, cultures and ethics that governs how they behave. ii. e.g. inthe contextof culture,Japanesewhomare known for their work culture practices e.g. Honne and Tatemae. iii. Honne = one’strue feeling,true desiresandtrue opinions iv. Tatemae = behaviors and opinions displayedin public. 5. It can be concludedthattheykey functionof institutionisto minimize risks associated with doing business by reducing the uncertainties. 6. Business uncertainty can be the results of economic and political uncertainties. 7. Economic uncertainty = relates for example the failure to complete transactionsasinterpretedincontracts. 8. Political uncertainty =includesanychangesinthe political environmentthatcan affectbusinesslong-termplanning. INSTITUTION-BASED VIEW 2 Main propositions: 1. Managers and firms consciously pursue their interest and strategies within institutional constraints. i. E.g. firms pursue counterfeiting strategies as their strategic choice as there are weak institutional environment in whichthere are weakprotection on intellectual propertyrights.
2. Combinations of formal and informal institutions are supposed to govern firm behavior. i. When formal institutions fail to lead firm to achieve competitive advantage, firm will then turn to informal institutiontoreduce uncertainty. ii. This informal institution in commonly refers to political resources in which firm rely on political influencetogaincompetitiveadvantage. THE STRATEGIC ROLE OF CULTURE 1. Culture – the collection of values, beliefs, behaviors, customs and attitudes that differentiate one society from another. 2. The collective programmingof the mindwhichdistinguishes the members of one group or category of people from another. 3. Not inherited but is learned by people and encouraged by societiesandgovernment. 4. Not static, it changes as society undergoes change, new tradition may be introduced and inculcated within the society. PROBLEMS IN DEALING WITH CULTURE DIFFERENCES 4 Cultural variables that affect company to adjust: 1. COMPANY AND MANAGEMENT ORIENTATION - 3 cultural orientations: A. Ethnocentrism - A belief thatone ownwayof doingthingsisthe best,andwill not seektoadapt to local culture practices - They tend to project their values on others and see foreign culturesasodd or of little ornovalue tothem. B. Polycentric - A belief thatfirmmustseektodothingsthe waylocalsdo. - Followsthe local culture C. Parochialism - A belief that the only way to do something is the way it is done inone’sownculture. 2. HOST SOCIETY ACCEPTANCE - It is much easier for firm to succeed in foreign land should the hostcountry isreceptive toforeignwaysof doingthings. - Ex, the introduction of new product, technologies or operatingprocedures. 3. DEGREE OF CULTURAL DIFFERENCES - Some countries are similar to other countries and share many common characteristics such as language, religion, geographiclocationandlevel of economicdevelopment. 4. ABILITY TO ADJUST TO FOREIGN CULTURE - Inabilitytoadjustto foreignculture issometimesassociated withculture shock. - i.e., the frustration of having to adjust to vast different culture andexpectations. IMPACT OF CULTURE ON BUSINESSES 1. Cultural playsa critical role for firm whenenteringa foreign market. 2. Most common mistake done by firms is the inability to understanddifferentculture whichmaycause a devastating effect. 3. Cultural sensitivity training – can help to avoid culture blunders.
4. Cultural sensitivity – a state of heightened awareness for the valuesandframesof reference of the hostculture. 5. Managerscan use varietyof well-knownframeworksthatare useful inunderstandingthe manydimensionsof culture. 6. E.g. Hofstede culture dimension,FonsTrompenaar’sculture dimension,the GLOBEstudy. THE STRATEGIC ROLE OF ETHICS 1. Ethics – the principles of what is right and wrong that individual and firm use to make strategic choices to guide theirbehavior. 2. Business ethics – the acceptedprinciplesof rightor wrong governingthe conductof businesspeople. 3. Ethical strategy –a strategy,or course of action, that does not violate these acceptedprinciples. 4. Code of ethics/conducts – outlined what can or cannot be done withinaparticularsetting. IMPACT OF ETHICS 3 different views: 1. Positive view – suggestthat firmsare self-motivatedtoact and behave ethically regardlessof any social pressure to do so. 2. Negative view –arguesthatfirmisa followerinwhichthey jumpontothe “bandwagoneffect–followingwhatothersdo” under social pressure to appear more legitimate without necessarilybecomingmore ethical. 3. Instrumental view – maintains that ethical behavior is a useful instrumentthatcanleadto firmprofitability. ETHICS IN INTERNATIONAL BUSINESS 3 Guiding principles: 1. RESPECT FOR HUMAN DIGNITY AND BASIC RIGHTS - Basic rightsinclude matterspertainingtohealth,safety. - The needfor educationinsteadof workingat the youngage and this should determine the absolute, minimal ethical thresholdsforall operationsaroundthe world. 2. RESPECT FOR LOCAL TRADITIONS - It suggests for cultural sensitivitywhen dealing with foreign traditions. - E.g. nepotism or hiring employees’ children and relatives rather than qualified applicants is illegal according to U.S. equal opportunitylaw. 3. RESPECT FOR INSTITUTIONAL CONTEXT - Thiscallsfor careful understandingof local institutions. - Establishingacode of conduct that ban briberyislessuseful unless supplemented with specific guidelines on the scale and scope of locallyappropriate giftgiving.
CHAPTER 5 GLOBAL COMPETITVENESS DYNAMICS WHAT ARE COMPETITVE DYNAMICS AND COMPETITOR ANALYSIS? 1. One of the strategic decisions a firm must pursue when enteringaforeignmarketconcernsthe timingof entry. 2. Certain issues need to understand in discussing strategic decision: - Why does a firm pursue certain strategies and not the alternatives? - Consequently, how do other respond to the strategies pursued? - What are the performance outcomes of these actions and responses? COMPETITIVE DYNAMICS 1. Refertoactionsand responses takenbycompetingfirms. 2. In this competitive global business environment, firms continuously seek to gain competitive advantage over the other. 3. A firm’sstrategytoenhance theircompetitivenesswillresult inresponse andactionsby others. 4. Firms must be able to identifyand predict how competitors will respondtotheirinitiatives. 5. Ex: firms that want to be a “first-mover” must be prepared with the possibility of others following and rivals being able to become betterthanthem. COMPETITIVE ANALYSIS 1. Givesa firma strong marketunderstanding. 2. It refers to the assessment of the strength and weaknesses of currentand potential competitor. 3. Alsoreferstothe abilityof firmstounderstand of theirown. 4. By incorporating competitor analysis as part of a firm’s strategyformulation,firmsare able to adapt and buildtheir own strategies to be able to compete effectively, improve performance,andgainmarketshare intheirbusiness. COMPETITION LEADING TO ACTION AND RESPONSE STRATEGIES 1. Military analogy is applied in business because the marketplace is seen as a battlefield characterized by aggressive competitionbetweenfirms. 2. Terms like “price war”, “attack”, “counterattack” are commonstermsusedinmilitary. 3. Businessfirmscompete overmarket. 4. Global firm may compete in multimarket known as multimarketcompetition. 5. Multimarket competition exists whenthe firm is competing with the same rival in multiple markets. Ex: both Coca Cola and Pepsi presentinalmosteverymarketinthe world. 6. Firm must recognize the capability of rivals to strike back in multiple markets and this multiple market competition may leadto reductionof competitionintensityamongrivals. 7. Mutual forbearance – reduction of competition intensity. Leadingtotolerance andself-controlamongrivalswithinthe industry.
COMPETITVE DYNAMICS MODEL - A comprehensive model on competition from the perspective of “action”and“response”asstrategy. - This model is basedon 3 perspectiveswhich are: - 1. Industry-basedconsiderations - 2. Resource-basedconsiderations - 3. Institutional-basedconsiderations 1. INDUSTRY-BASED PERSPECTIVE - The basis of IBP using Porter’s 5 Forces is the rivalry among existingfirmsinthe industry. - Competition may eventually lead to devastating effect for the entire industry,firmsmayresorttocollusion(agreement) to reduce the effectof competitiononfirms. - IBP focuses on – nature of collision (tacit and explicit), industry characteristics that lead to collusion and prisoner’s dilemma. - A. Collusion - Referstocollective attemptstoreduce competition. - i. Tacit collusion - referstoanindirectinitiativebyfirmstoreduce competition. - Occurswhenthe firmssignaltheirintentiontootherindustry players to reduce output in order to maintain pricing above competitivelevel. - Ex: mutual forbearance - ii.Explicit collusion - Referstoa directmove byfirmsto reduce competition. - Occurs where industryplayersdirectlynegotiate onmatters to pertaining output, pricing and divide market to reduce competition. - Formation of cartel = an entity consists of existing industry players who agree to fix output and pricing to safeguard market. - Also known as trust = members have to trust each other to honortheiragreement. - B. Prisoner’sDilemma - Industry players may agree to set pricing in an attempt to reduce competition. - Although industry players have prior agreementto fix price, theystill have strongincentivestocheat. - The ultimate effect is both parties will suffer from weak performance. - BASIS FOR COLLUSION – INDUSTRYCHARACTERISTICS - Industrybasedconsideration - Collusionhappenswhenindustryplayersforeseethatfurther competitionisnotgoodforthe firmsandthe entire industry. - Hence, they resort to collective agreement to preserve marketthroughcollusion. - Industry characteristics and possibilityof collusion vis-à-vis competition COLLUSION POSSIBLE (UNLIKELY COMPETITION) - Few firms (high concentration) - High frequency, lowvalue orders - Existence of an industryprice leader - Friendly social relationships among rival managers - Homogenous product(similar) - Highentrybarriers - Stability of demand, supply andtechnology - High market commonality (mutual forbearance)
COLLUSION POSSIBLE (UNLIKELY COMPETITION) - Many firms (low concentration) - Low frequency, highvalue orders - No industry price leader - Distant social relationships among rival managers - Heterogenous products(various) - Low entrybarriers - Rapidly growing demand, supply and technology - Lack of market commonality (no mutual forbearance) - Factors that enable possible collusion: - 1. Fewfirms (highconcentration) - The possibility of rival firms to collude depends on the numberof firmswithinanindustry. - Higherconcentrationreferstothe existence ofonlyfewfirms, whereaslowconcentration referstomanyfirms. - The higher the concentration the easier it is to organize collusion. - 2. Existence ofan industryprice leader - 3. Homogenousproduct - Has a tendency to collude as they are competing on price rather thanproduct differentiation. - Competingonprice will leadtoaruthlessimpact - 4. Stabilityof demand,supplyand technology - If there is a rapid demand, supply, technology, collusion is lesslikelytohappenasit leadstogrowingmarketshare. - 5. High frequency,lowvalue orders - 6. Friendlysocial relationshipsamongrival managers - Leads to a better chance that they will be able to reach a collective agreement pertaining to industry output and pricing. - Ex: if managers among rivals were fromthe same university or from the same social club, it is more convenient for collusiontotake place. - 7. High entry barriers - Like the airlines industry is more likely to collude than low entry barriers like restaurants as new entrants may ignore the existingindustryorder. - 8. High market commonality(mutual forbearance) 2. RESOURCE BASED CONSIDERATION - Based on VRIO framework, resource familiarity that lead to competitive advantage that enables firms to engage in strategicactionsand compete successfully. - A. Value = Inthe contextof competitivedynamics,the ability to attack in multiple markets causing rivals to become vulnerable isconsideredvalue. - B. Rarity = firms with rare assets are generating significant advantage. - C. imitability= strategythat is highlyimitable posesariskto firms. Hence, firms with inimitable, complex strategies, and able to move quicklyoftenhave betterfinancial andmarket performance. - D. Organization = some firms are organized to withstand competition while others may have to opt for collusion. A more centrallycoordinatedfirmmayengageincollusionwith a looselycontrolledfirm. - E. Resource Similarity = firms with relatively similar resources are likely to possess similar strengths and weaknesses.
3. INSTITUTION-BASED CONSIDERATION - Understandingthe role of institutions-basedviewleadtothe recognitionthatfree marketsystemisnotnecessarilyfreein that institution may govern competitive dynamics in domesticandinternationalcompetition. - A. Formal InstitutionGoverningDomesticCompetition - Refers to competition policy = determines the institutional mix of competition and cooperation that give rise to the marketsystem. - Commonly used, antitrust policy = this policy is designed to fight against the issue of monopolies, cartel and trust and usedwidelyinUSand otherdevelopednations. - The focal point of competition/antitrust policy focus is pertainingto the issue of pricingwhich include: - i.Collective PricingSetting= it iswhere the collusionparties setpricesat a level higherthanthe competitive level. - ii.Predatory pricing = isdefinedbyUSlawsas - a) settingpricesbelowcostsinthe shortruntodestroyrivals, - b) intending to raise prices to cover losses in the long run aftereliminatingrivals. - iii. Extraterritoriality = is imposing one’s laws to other countries. - B. Formal InstitutionsGoverningInternational Competition - i. Dumping - definedassellingbelowcostinforeignmarketand planning to raise pricesaftereliminatinglocal rivals. - 4 possible outcomesofantidumpinginvestigation: - 1. If foreign firm fail to provide the requested data, authorities will use data provided by the accusing firm as evidence,thatgive accusingfirm a betterchance to winthe case. - 2. If however,foreignfirmsdoprovidecostdata,the accusing firmcanstill accuse foreignfirmof lyingandthatforeignfirm ispracticingunfairpricing. - 3. In the case where the cost data are verified, US antidumping laws allowthe accusing firm to argue that the data are misleading. - 4. The lastoutcome isthatitispossiblethatforeignfirmwins the case,but thisseemsveryunlikely. - ii.Export Cartels - Is firm alliances or collusion that collaborate in exporting. Theiractionsinclude settingquotaandfixingprices. - Although in a domestic setting or sometimes even encouragedif itpromotesexportsof thatparticularcountry. - C. Informal Norms AndBeliefs - The behavior of individuals and firms are influenced by certainvalues,beliefsandnorms. - Ex: given some new norms such as investing in emerging economieslike chinaandMexico,manywesternfirmsoften imitate eachother withouta clear understandingonhow to make it work. - Ex: where Asians view trust-based relationships among individuals or firms as normal and beneficial, whereas Americanviewthemascollusion.
ATTACK AND COUNTERATTACK - Attack = refersto an initial setof actionstogaincompetitive advantage - Counterattack = consequently refers to a set of actions in response toattack. - 3 main typesof attack: - 1. Thrust = a firm launches direct attack to dominate a particular market with the intention to oust its director competitor. - Must satisfy 2 conditions: - 1. Both rivalshave relative strength, - 2. Both rivalsrecognize the importance of the markets. - 2. Feint = under this strategy a firm attack competitor’s important market so that the competitor will be occupied defendingthe market. - Based on a military strategy in deceiving the opponent. in fact, the attacking firm has no intention to dominate that market. - 3. Gambit = a firm has to surrender its low-value market in order to capture a high-value market (similar to strategy of scarifyingapawnin a chessgame). - Can be viewed as an exchange of the sphere of influence which resulted in both gain stronger position in only one market. - Must satisfy 2 conditions: - 1. Rival has a significantstake inthatmarket, - 2. Rival must perceive one party withdrawal to be genuine and credible. FACTORS THAT LEAD TO COUNTERATTACK 1. Awareness - Rival is aware that one’s action is to drive away its position fromthe market. - If the firm being attacked is aware of the attacking firm’s intention,mostlikelyitwill counterattack. 2. Motivation - The firm being attacked have the motivation to counterattack.Thismotivationcomesfromthe fact that the marketissignificantlyimportanttothe firmbeingattacked. 3. Capability - The firmbeingattackedhave all the resourcesandcapability to launchcounterattack. - Althoughthe firmbeingattacked is aware and motivatedto counterattack, but if it does not have the capabilities and resourcesto counterattack,thencounterattackwill nottake place.
CREATING HEALTHY COMPETITIONS THROUGH COOPERATION 1. Nonaggression - Is whena firmavoidfromintimidatingothers. - Refers to nonthreatening ways of doing business so that it will notprovoke otherstoattack one’score business. 2. Market Entry - Firmmayentera newmarketbutnotina waythatchallenge the existingplayersbuttoseekmutual forbearance. - MNEs in known for pursuing each other, entering one countryafter another. 3. Truce Seeking - Firmcan senda signal fora truce, - Ex: by announcing a price increases in a middle of a “price war”. - By sending this signal, firm expect others to follow as a prolongprice war hurtsthe profitsof all rivals, 4. CommunicationVia Government - Directnegoamong rivalstofix pricingisillegal. - Hence, firm can send signal to rivals to reduce competition viagovernmentinvolvement. 5. Strategic Alliance - Firms can cooperate by organizing strategic alliances with competingfirmsforcostreduction.
CHAPTER 6 COUNTRY EVALUATION AND SELECTION THE IMPORTANCE OF LOCATION 1. Because all companieshave limitedresources,theymustbe careful in making the followingdecisions: - A. in which countries to locate sales, production and administrativeandauxiliaryservices. - B. the sequence forenteringdifferent countries - C. the amount of resources and efforts to allocate to each countrywhere theyoperate 2. Acompany shouldbeginbyanalyzing3factors: a) objectives b) its competencies c) comparative environmental fit in the countriesunderconsiderations. COMPARING COUNTRIES THROUGH SCANNING STEP 1: SCANNING - Is like seedingwidelyandthenweedingout - It is useful insofar as a company might otherwise consider too few ortoo many possibilities. SCANNING VERSUSDETAILED ANALYSIS - Withoutscanning, a company may: - A) Overlookopportunitiesandrisks - B) examine toomanyortoo fewpossibilities - Scanning allow managers to examine most or all countries broadlyandthennarrow themto the mostpromisingones. - Managers compare country information that is readily available, inexpensive and fairly comparable – usually without having to incur the expense of visiting foreign countries. - They analyze publicly available information and communicate with experienced people on conditions that couldsignificantlyaffectthesuccessandfitfortheirbusiness. 4 types ofquestions: 1. Yes or no for a question like, does the country allow 100% ownershipof FDI? 2. Direct statistics for question such as, what is the highest marginal tax rate on corporate earnings? 3. Indirect indicators for question such as, what are the potential salesformyproduct? 4. Qualitative assessmentforquestionsuchas,whatwillbe the future political leaders’philosophyaboutIB? STEP 2: DETAILED ANALYSIS - Once narrowing the no of countries, managers need to compare the feasibilityanddesirabilityof each. - Unless they are satisfied to outsource all their production and sales, they almost always need to go on location to analyze andcollectmore specificinformation. - The more time andmoneycompaniesinveston examiningan alternative, the more likely they are to accept it, regardless of its merits – a situation known as an escalation of commitment.
OPPORTUNITY AND RISK VARIABLES OPPORTUNITYVARIABLE 1. OPPORTUNITIES: SALES EXPANSION 2. OPPORTUNITIES: RESOURCE ACQUISITION RISK VARIABLE 1. FACTORS TO CONSIDER IN ANALYZING RISK 2. POLITICAL RISK 3. FOREIGN-EXCHANGERISK 4. NATURAL DISASTER RISK 5. COMPETITIVE RISK OPPORTUNITYVARIABLE 1. OPPORTUNITIES: SALES EXPANSION - Probably companies’ most motivating factor for IB engagementbecause managersassume thatmore saleswill leadto more profits. - ExaminingEconomic and DemographicVariables: - A. OBSOLESCENE AND LEAPFROGGING OFPRODUCTS - Consumers in developing economies do not necessarily followthe samepatternsasthose inhigher-income countries. - Ex: Chinese consumers have largely leapfrogged landline telephonesbygoingfromphonelesstocell phones. - B. PRICES - If pricesof essentialproductsare high,consumersmayspend more on these products than what one wouldexpect based onpercapita GDP,thushavinglesstospendondiscretionary purchases. - Ex:the expendituresonfoodinjapan,forinstance,are higher thanwouldbe predictedbyeitherpopulationorincome level because food is expensive and work habits promote eating out. - C. INCOME ELASTICITY - A common tool for predicting total market potential is to divide the percentage of change in product demand by the percentage of change inincome ina givencountry. - The more that demand changes in relation to income changes,the more elasticisthe demand. - Demandforthe necessitiessuchasfoodisusuallylesselastic thanisdemandfordiscretionaryproductssuchasflat-screen TVs. - D. SUBSTITUTION - Consumers may substitute certain products or services differentlyinone countrythaninothercountries. - Ex: in Venezuela, an economic downturn caused a huge switchfromtraditionallypopularexpensiveScotchwhiskyto rum, whichwaslessexpensive. - E. INCOME INEQUALITY - Where income inequalityis high, the per capita GDP figures are lessmeaningful. - Many people have little spend, while many others have substantial spendingmoney. - Ex:highincome inequalityhasresultedinaverysmallmiddle classin mostsub-SaharanAfricancountries. - F. CULTURAL FACTORS AND TASTE - Countries with similar per capita GDPs may have different preferences for products and services because of values or tastes. - Ex: the large Hindu population in india reduces per capita meat consumption there. However, there is a large niche marketof Indianswhoare neitherhindunorvegetarian.
- G. TRADING BLOCS - Althoughacountrymayhave asmall populationandGDP,its presence ina regional tradingblocgivesitsoutput access to a much largermarket. - Ex: Uruguay has a small domesticmarket,butitsproduction has duty-free access to 3 other countries in the Southern CommonMarket (MERCOSUR) 2. OPPORTUNITIES: COST CONSIDERATION OF RESOURCE ACQUISITION - Companies undertake IB to secure resources that are either not sufficiently available or too expensive in their home countries. - They may purchase these resources from another organization, or they may establish foreign investments to exploitthem. - A. LABOR - Is important factor in companies’ production location decisions. - Althoughcapital intensityisgrowinginmostindustries,labor compensation remains an important cost for most companies. - Scanningallowscompaniestoexamine suchfactorsas labor market size, labor compensation, min wages, education levelsandunemploymentrates. - Labor is nothomogeneous. - Enteringacountrywithashortage of requiredlaborskillswill require MNEs to train, redesign production, or add supervision –all of whichare expensive. - B. INFRASTRUCTURE - Infrastructure problemsmayaddtooperatingcosts. - Poor internal infrastructure may easily negate cost differencesinlaborrates. - Inmanydevelopingcountries,infrastructureisbothpoorand unreliable,whichaddstocompanies’costsof operating. - C. EXTERNAL CONNECTIONS - IB requiresdiverse levelsof cross-national integration,all of whichincurtime and costs. - HQ personnel visit foreign locations to support control efforts. - Companiesneedasmoothflowof shipmentsastheyimport and exportamongtheirfacilitiesindifferentcountries. - D. GOVERNMENTAL INCENTIVESAND DISINCENTIVES - Gov. promote inward foreign investment to create jobs, enhance competitivenessandimprove trade balances. - Through ads, investment missions and foreign consular activities. - Companiespreferoperatingincountrieswhereredtape and corruption are minimal and where legal transparency and lawenforcementare high. RISK VARIABLE 1. FACTORS TO CONSIDER IN ANAYZING RISK - A. Companiesandtheirmanagersdifferin theirperceptions of what is risky, how tolerant they are of taking risk, the returns they expect and the portion of their assets they are willingtoputat risk. - B. one company’s risk may be another’s opportunity. - Companies offering security solutions (alarm, guard services)may find their biggest sales opportunities where othercompaniesfindonlyrisks.
- C. companies may reduce their risks by means other than avoidinglocations, such as by insuring.Butall these options incurcosts. - D. there are trade-offs among risks. Avoiding a country where, say political risk is high may leave a company more vulnerable to competitive risk if another company earns goodprofitsthere. - E. risksmay occur for suppliersand within suppliers’ supply chains, thus companies need to examine the complex external dependenciesandvulnerabilitiesof itssuppliers. 2. POLITICAL RISKS - A. ANALYZING PAST PATTERNS - Predictingpolitical riskbasedon past patternis problematic because situationsmaychange. - A country’s overall political situation masks differences withincountriesandfordifferentfirms. - B. EVALUATIING OPINIONS - Because influential people mayswayfuture political events, managers should evaluate statements by political spearheads to determine the philosophies on private business, foreign business relations, means of effecting economic changes, and feelings toward given foreign countries. - C. EXAMINING SOCIAL AND ECONOMICCONDITIONS - Frustrated groups may disrupt business by calling general strikes,destroyingpropertyandsupplylinesandcausingthe downfall of governmentleaders. 3. FOREIGNEXCHANGE RISK - A. Exchange Rate Changes - The change in foreign currency value is a 2-edged sword, dependingonwhetheryouare goingabroadto seeksalesor resources. - B. ImmobilityOf Funds - When a company exports to or invests in a foreign country, itprefers international mobilityof itssalesreceipts,earnings and capital there. - Withoutthe mobility,manyfirmseitherforgooperationsor expectahigherrate of returnthere than elsewhere. 4. NATURAL DISASTER RISK - A. MOTHER NATURE CATASTROPHES - Each year,hundredsofmillionsof people are exposedtorisks from earthquakes, cyclones, flooding, drought, volcanic eruptions,risingoceanlevel,mudslidesandtornados. - These disastersupsetmarkets,infrastructureandproduction while damaging companies’ property, injuring their personnel andincreasingtheirinsurancecosts. - B. DEBILITATING DISEASES - The incapacitating effects of disease have an impact on several facetsof businessoperations. - Ex: because of both Ebola and Zika, companies decreased business travel to distressed areas, thus hindering their buyingprogramsand oversightof subsidiariesthere.
5. COMPETITIVE RISK - A. COMPATIBILITY FOR COMPANIES’OPERATIONS - Companies encounter less familiar environments abroad than at home, their operating risks are normally higher abroad. - Managers initially prefer to operate where they perceive conditionstobe more similartotheirhome country. - Liability of foreignness = MNEs have a lower survival rate than local companies for many years after they begin operations. - B. DIVERSIFICATION OF LOCATIONS - Operatingineconomicallydiverse countrieswhose business cycles are not highly interrelated may enable companies to smooththeirsalesandprofits, whichinturnis an advantage inraisingfunds. - Giventhe growthinproductcomplexity,technologycontent, andcompanies’productspecialization,there isaneedtotap knowledge emanatingfrommultiple companies. - C. FOLLOWING COMPETITORS OR CUSTOMERS - Oligopolistic reaction = managers may purposely crowd a market to prevent competitors from gaining advantages there thattheycanuse toimprove theirpositionselsewhere. - Location decision is made on the basis of a competitor’s action rather than on location-based characteristics such as the cost of laboror marketsize andgrowth. - Agglomerationby nationality = occurs whenfirmsfrom the same home country, regardless of industry, cluster in a location. - D. HEADING OFF OR AVOIDING COMPETITION - Companies mayseekcompetitive advantage by:2 - 1) beingfirstintoa foreigncountry - 2) avoidingacountry entrywhere competitionsisstrong - 3) movingquicklybywhateveroperatingmode intoasmany marketspossible. COUNTRY COMPARISON TOOLS There are 2 most common tools in scanning: 1. Grids - May depictacceptable orunacceptable conditions - Rank countriesbyimportantvariables 2. Matrices allowcompaniesto: - Decide onindicatorsandweightthem - Evaluate eachcountryon the weightedindicators SOURCES AND SHORTCOMINGS OF COMPARATIVE COUNTRY INFORMATION 1. INACCURACY 2. NONCOMPARABILITY 6 REASONS MAY BE INACCURATE: 1. Governmental resourcesmay limitaccurate data collection - Countries resources may limit budgets for data collection, the latest computer hardware, software, and training programs. 2. Governmentsmustdependon estimatesand revisions - There istrade-off betweenaccuracyandtimelinessof data. 3. Governments may omit or purposely publish misleading information - Gov researchers sometimes publish false or purposely deceptive information designedto mislead their superiors, the country’s rank and file or companies and institutions abroad.
4. Respondentsmay give false informationto data collectors. - Mistrust of data usage may lead respondents to answer questions falsely, particularly if questions probe financial details or anything else that respondents either consider private or to be usedbygov authoritiesagainstthem. 5. Official data may include only legal and reported market activities - Nationally reported income figures seldom include illegal income from such activities as the drug trade or cash transactionstoavoidtax payments. 6. Questionable methodologymaybe used - Inaccuracies may occur because of methods use to collect and analyze information. Noncomparability: - Countries do not necessarily publish reports for the same lengthof time periodsorat the same time as eachother. - Countriesalsodifferinaccountingrulesandhowtheydefine items,suchas familyincome,literacyandFDI. EXTERNAL SOURCES OF INFORMATION 1. Service companies – banks, transportation agencies, accountingfirms 2. Government agencies – the US department of commerce, CIA 3. International organizations – the UN, the WTO, IMF, OECD, EU 4. Trade associations ALTERNATIVES FOR ALLOCATING RESOURCES AMONG LOCATIONS 1. ALTERNATIVE GRADUALCOMMITMENTS 2. GEOGRAPHICDIVERSIFICATIONVERSUS CONCENTRATION 3. REINVESTMENT AND HARVESTING 1.ALTERNATIVE GRADUAL COMMITMENTS Companiesmay reduce risks from the liabilityofforeignnessby: 1. Going first to countries with characteristics similar to those of theirhome countries 2. Having experienced intermediaries handle operations for them 3. Operating in formats requiring commitment of fewer resourcesabroad 4. Moving initially to one or a few, rather than many, foreign countries 2.GEOGRAPHICDIVERSIFICATION VS CONCENTRATION Strategies for ultimately reaching a high level of commitment in many countries are: - Diversification– go to manyfast and thenbuildupslowlyin each - Concentration – go to one or a fewand buildup fast before goingto others. - A hybrid of the two.
Reason company should considerwhen decidingwhich strategy to use: 1. Needfor rapid growth in country - If country markets are all growing rapidly, companies may need to invest heavily in each to build and maintain a threshold market share, thus straining resources if simultaneouslyenteringalarge noof countries. 2. Competitive leadtime - Where technology obsolesces rapidly, companies need to enter many markets quickly before competitors usurp their advantages, thus being in situations that favor a diversificationstrategy. 3. Need for product, communication and distribution adaptation - When companies must tailor their products and operating methods for each country they enter, they incur additional costs. 4. Program control requirement - The more company wants to control its operations in a foreign country, such as because of fear that a partner will become a competitor, the more favorable a concentration strategyis. REINVESTMENT AND HARVESTING 1. REINVESTMENT DECISIONS - Companies treat decisions to replace depreciated assets or to add to the existingstockof capital fromretainedearnings in a foreign country somewhat differently from original investmentdecisions. - This is because companies may have to make new commitmentstomaintaincompetitivenessabroad. 2. HARVESTING - Companies commonly reduce commitments in some countriesbecause those countrieshave poorerperformance prospectsthandoothers –a processknownasharvesting(or divesting) - Companiesmustdecide howtogetoutof operationsif: - Theyno longerfitthe overall strategy - There are betteralternativeopportunities - Companies may divest by selling or closing facilities. They usually prefer selling because they receive some compensation. - A company that considers divesting because of a country’s political oreconomicsituationmayfindfewpotential buyers exceptatverylowprices. NON-COMPARATIVE DECISION MAKING - Most companiesexamineproposalsoneatatime andaccept themif theymeetminthresholdcriteria. - Managers make go-no-go decisions by examining one opportunity at a time and pursuing it if it meets some thresholdcriteria. - To begin with, companies sometimes need to respond quicklytoprospectstheyhadnot anticipated.
CHAPTER 7 ENTRY MODESTRATEGY 1. Most commontrade-relatedentrymode strategy?International marketentrystrategies.(through exporting) 2. Exporting = where an MNE maintains its presence at home countryand sellsitsproductinternationally. 3. Firm pursuesexportingas entry mode strategy because: – involved fewer as risks as compared to other entry mode strategy. - No substantial investment to establish production facilities abroad. - Doesnothave todeal withdifferentbusinessenvironmentin differentcountriesunlikegreenfield(FDI) - Can gain specific knowledge about a particular foreign market that lead to further business expansion in that country. 4. Disadvantages of usingexporting: - Tariffbarrier orimporttax imposedbylocal government.Tax may increase the price of the productsinforeignmarketand reduce productcompetitiveness. - Transportation cost may also reduce product competitivenessasitincreasesthe price of the products. - Firm may be unable to sell the productdirectlyto consumer as it needs to hire third party or intermediaries who act as distributortosell the productinforeigncountrymarket.The 3rd party may not be able to perform the task efficiently as the firmdoesat a home country. WHY EXPORTING MAY NOT BE FEASIBLE 1. It may not be feasible option for firm to pursue if it compromises firm’s competitiveness in global marketplace. In this case, exporting is inappropriate strategy when it increasesthe costof doingbusiness. 2. Tariff barriers, transportation cost and 3rd party distributors may all increase the cost and hence reduce the competitivenessof the product. - In this case, FDI may be more appropriate strategy pursue when firm can identify low-cost location to manufacture its product. UNDERSTANDING EXPORT PROCESS A. DIRECT EXPORT - Can be done directly by the firm or through the 3rd party or known as export intermediaries or export management company(EMC) - The person in charged of the exporting process must familiarize with the export terms which is also known as terms of sale as defined by international chamber of commerce (ICC) - The termsspecifywhichparty eitherbuyerorsellerpaysfor which shipmentand loadingcost: 1. FREE ALONGSIDESHIP (FAS) - Alsoknownas Free House delivery=atermof price whereby the sellercoversall costsand risks up to the side of the ship ina designatedshipmentexportport. - The BUYER bearsall costs andrisksthereafter. 2. FREE ON BOARD (FOB) - The SELLER covers all costs and risks up to the point where the goodsare deliveredonboardof the ship.
- The BUYER bears all costs and risks once goods delivered which means the buyer is responsible for the insurance and freight expenses in transporting the goods from shipment port to the destinationport. 3. COST, INSURANCEAND FREIGHT (CIF) - The SELLER covers costs of the goods, insurance and all transportation and miscellaneous charges to the name of foreignportinthe country of final destination. 4. EX WORKS/ EX FACTORY - The BUYER bears all costs of the goods, transportation and miscellaneous charges to the name of foreign port in the countryof final destination. - The BUYER purchasesandbearsthe insurance. - Ex factory is considered the most cheapest arrangement as the buyer can make their own arrangement and choose the cheapestcostof transportationandinsurance. Frequentlyuseddocuments: 1. A letterof credit (L/C) - A documentissuedbymostlyfinancial institution. - Serves as a contract between importer and a bank that transfers liability for paying the exporter from the importer to the importer’sbank. 2. A bill of lading (B/L) - The documentissuedbyshippingcompanyoritsagent. - Serves as evidence of a contract for shipping the merchandise andasa claimof ownershipof the goods. Otherimportantdocumentsused:bankdraft(servesasaguaranteed fund), commercial invoice, insurance certificate and certificates of origin. B. EXPORT INTERMEDIARIES - Are a company,alsoknownasexportmanagementcompany (EMC) which specializes in facilitating imports and export activities. - Their service includes: - handlingforeignshipments, - preparingexportdocuments - dealingwithcustomoffices - insurance companies - commodityinspectionagencies - are commonly experts in dealing with legal, financial and logisticsdetailsof exportingandimportingactivities. INTERNATIONAL SUBCONTRACTING 1. The process in which a firm seek other firm or company (typically foreign firm) to provide them with raw materials, semi-finished products, sophisticated components or technologyforproducingfinal goods. 2. The foreign firm does not own the property rights of the product produced as they will receive some fees for producingthe. 3. Rationale because: - Otherforeignfirmsare more efficient - Can produce the productcheaper - Seeklowlaborcostin foreigncountry - Seek for lower cost of production that can enhance its competitivenessinthe global marketplace. 4. Threat – the foreignfirmmay gainknowledge andexpertise toproduce the productandeventuallybecomeacompetitor.
COUNTERTRADE 1. A seller and a buyer from different countries exchange merchandise with or without little cash equivalents. 2. In international trade, countertrade is viewed as a form of flexible financingorpayment. 3. This trade arrangement can be categorized into four differentactivitieswhichinclude: A. BARTER - Barter trade (i.e. exchange of goods) may be the oldest form of trading. - In modern barter trade, it involves direct and simultaneous exchange of goods between two parties without any cash transaction. - the two parties involved can be between individuals, and firms or between firms and governments in two different countries. - For example, French and Cuba barter trade involve the exchange of wheat for sugar. B. COUNTERPURCHASE - Is a reciprocal buying agreement between two parties that occurs at a different time. - In this arrangement, one firm sells its product to another firm at one point in time and in return, the other firm will buy their products. - It is more flexible than barter trade in which the volume of trade does not have to be equal. - The differences invalue can be settled either though escrow account or by using cash. - it serves as a protection contract between them. C. OFFSET - An offset is an agreement between two parties in which one party agrees to purchase goods and services with a specified percentage of its proceeds from an original sale. - In offset agreement, products are normally related. - Offset arrangement is commonly popular in sales of expensive military equipment or high-cost civilian infrastructure hardware. D. BUYBACK - In this agreement, it involves two contracts which are sales agreement and purchase agreement. - buyback is a compensation agreement that occurs when one firm provides another firm with inputs for manufacturing products and agrees to take certain percentage of the output produced by the producing firm as partial payment.
TRANSFER RELATED ENTRY MODE STRATEGY - occurs when one firm transfer ownership or property rights of its technology or assets in exchange for royalty fees. - 4 different types: A. INTERNATIONAL FRANCHISING 1. An arrangement between 2 parties known as franchisorandfranchisee. 2. Franchisor grants the intangible property rights(trademark, brand name) to the franchisee in exchange of royaltyfees. 3. Franchisee must abide by the terms and rules of doingbusinessasspecifiedbythe franchisor. 4. ADVANTAGES: 1. Low political risksas the businessismanaged by franchisee whichis familiarwithlocal marketcondition. 2. Low cost of doing business abroad as the cost of setting up the businessinforeignmarketwill be borne byfranchisee. 3. Franchising is an easy way for franchisor to create revenue by leveragingonassets. DISADVANTAGES: 1. Franchisee jeopardize and damage the image of the firm if theyare unable or do not followthe qualitystandardset by the franchisor 2. Franchisingagreementlimitsthe franchisor’sprofitrevenue. B. INTERNATIONAL LICENSING 1. International licensing is an agreement between a foreign firm known as the licensor and local firm known as the license. 2. In this agreement, the licensor grants specified intangible property rights to the license for a specified period of time and inreturnthe licensorwillreceive royaltypayment. ADVANTAGES: 1. A firmisable to minimize the costsandrisksassociatedwith doinginvestmentinforeignmarketsforexample,political risks. 2. No substantial investmentisrequiredtopenetrateforeign marketsas there isno needtoestablishproductionfacilitiesabroad. 3. Licensing is an attractive strategy firms lacking capital to venture intoforeignmarkets. DISADVANTAGES: 1. Firmsdo nothave control overthe manufacturingand marketingof the productsas the businessoperationsare managed by the license. 2. Potential lossof intangiblepropertyandknow-how. 3. By granting specific property rights, the license may gain knowledgeof the productsandeventuallymaybecome acompetitor by setting up its own business operations. Furthermore, the local license may benefit from the improvement of the product and uses themto penetrate the licensorshome market.
C. INTERNATIONAL LEASING 1. Another entry mode strategy where firm known as lessor leases its equipment or machines to foreign firm knows a lessee foraspecifiedperiodof time 2. The machines or equipment can be new or used machines that are normally leased to manufacturing firms in developingcountries. LESSOR BENEFITS: 1. The generationof revenue through leasingfees. 2. Fully utilization of the available equipment or machines as these equipmentandmachinesare commonlynotfullyused by the firmbut still ingoodconditiontobe leasedout. 3. Business expansion to foreign market and accumulate experience inforeignland. LESSEE BENEFITS: 1. Reduce financial burdentoaccessforeigntechnologies 2. Lesshassle andlittle orno maintenance cost. 3. Easier way to access to foreign technologies and facilities that enable lessee to increase their knowledge and experience withforeigntechnologiesandfacilities. D.BUILD-OPERATE-TRANSFER (BOT) 1. Alsoknownas“turnkeyprojects” 2. Foreigninvestorsare paidbya clienttodesignandconstruct newfacilitiesandtrainlocal personnel. 3. Upon completion, or over a period of time, the project will be hand overto the client. ADVANTAGES: 1. Firms can capitalize on BOT strategy to rapidly generate revenue andalsoasa meanto penetrate foreignmarkets. DRAWBACKS: 1. The client may later become competitor as the clients are exposedand trainedto use firms’advance and state-of-the- art technologies. 2. BOT does not allow long-term presence in international market since firm have to eventually hand over the project to local client.
CHAPTER 9 SMALL BUSINESS AND INTERNATIONAL ENTREPRENEURSHIP SMALL BUSINESS – CONCEPTS AND DEFINITION 1. Small business is categorized under small and medium enterprise(SME). It plays an important role in Malaysian economics. 2. Various agencies in Malaysia, adopt different definitionsof SMEs dependingontheirbusinessinterests. 3. Small and medium industries development corporation (SMIDEC) which defines SMEs according to 2 main factors – annual salesturn overand numberof full time workers. 4. Medium sized business = a business establishment with an annual sales turnover of between RM10 millionand RM25 millionandwhichemploysmore than150 full-time workers. 5. Small sized business = a business establishment with an annual sales turnover of not more than RM10 million and whichemploysnotmore than50 full time workers. CHARACTERISTICS OF A SMALL BUSINESS 1. OWNERSHIP - Privately owned by individual or partners, typically registered as sole proprietorship, partnership or private limited(SdnBhd) company. 2. MANAGEMENT - The businessismanagedandoperatedbythe owners - The entrepreneurs of founders of the business lead the company,andmay act as bothmanagerand worker. - The development of the business is determined by the owners and owners is the one that do the decision making. 3. RESOURCES - A small businessoftenhas lackresources. - Thisistrue for newstartsupdue toa lack of track record on the business to convince potential investors and bankersto invest. - Therefore, the success of the business is highly dependent on the ability of the owner to generate resources. 4. ORGANIZATIONSTRUCTURE - For a small business, the structure is often flat and informal. - The ownerhas to do almosteveryworkandthe workers are normally expected to be able to function as general workerssince there isnoclearseparationof tasks. 5. FLEXIBILITY OF CHANGE - The business has more flexibilityto adapt to changes in the environmentdue toitssize andinformal structure - It is very importantto be able to adapt to changessince any changes in technology or government policy might have a great impacton the business. - This is because with immediate changes, it requires additional capital or resources. This might become constraint to the business to compete and sustain itself inthemmarket.
ENTREPRENURSHIP, ENTREPRENEURS AND ENTREPRENURIAL FIRM 1. The firm size and age are not the important factors that define ent but ent is more definedas the identification and exploitationof previouslyunexploredopportunities. 2. Int ent is a combination of innovative, proactive and risk seeking behavior that crosses national borders and is intendedtocreate wealthinorganization. 3. Ent rise easily,theycanfall easily. INTERNATIONALIZATION AND THE SMALL BUSINESS 1. Internationalization is the increasing tendency of firms to operate acrossnational boundaries. 2. Many factors that contribute to the growth of internationalization: A. Rise of properinfrastructure B. Institutionalizationof international economicrelations C. Reductionof barrierstotrade flows D. Internationalizationfinancialsystem E. Cheapercostof transportand communication F. Expansionof transnational business INTERNATIONALIZATION STAGES OF BUSINESS 1. The UPPSALAMODEL of internationalization=introducedby JohansonandVahlne (1997). 2. The study was based on the internationalization processof large Swedish manufacturing firms which took place in the 1970s. 3. Main finding = firms have tendency to enter a new market incrementally,depending on their knowledge of the market environment. 3 MAJOR STAGES: 1. INTERNATIONALIZATION PROCESS OF TRADING GOODS - It is in the form of international transactions or the business/commercial operations. - Firms will export goods, supplies and services and combined operations with other firms to re-export or establishtrade officesinforeigntrade 2. THE INTERNATIONALIZATION OF PRODUCTION - This can be done throughvariousforms of alliancesand international cooperation that aimed at the technology transfer for the multi-production of goods abroad (by usingmode of entrysuchaslicensing,franchising,selling knowhow etc) - Firmsmay locate part or the whole of productionplant. 3. INTERNATIONALIZATION OF THE FIRM - The mainway of achievinginternationalizationisforeign directinvestment(FDI),inwhichthe firminvestsdirectly inphysical investment. - At this point, firms build up plants, hired local human resources, use local and imported resources to do production. THE STAGE MODEL OF INTERNATIONALIZATION FOR SMALL BUSINESS
STAGE 1: PASSIVEEXPORTING - The small businesses fill orders but do not seek export business. - At this stage, many small owners do not recognize that theyhave an international market. STAGE 2: EXPORT MANAGEMENT - It is where the firm or CEO will find export sales in this stage. - Due to limited resources, many small business rely or indirect channel of exporting and considered as the majortransitionforsmall businessestoexpandbroad. STAGE 3: EXPORT DEPARTMENT - The small business will use significant resources to find waysto increase salesfromexporting. - Export is not considered as a prohibitive risk by small businessesandit mustfindproperinternational partner to distribute the productsorservices. STAGE 4: SALES BRANCHES - When there is high demand from the foreign countries forthe productsor services,itisacceptableforthe small businesstosetuplocal officesatthose countries. - In this case, small businesses must choose whether to hire local managersandworkerstomanage the business or to sendexpatriatestothe foreigncountries. STAGE 5: PRODUCTIONABROAD - PA allows companies to gain local advantages, local adaptationandproductionefficiencies. - In orderto expandabroad,small businessesmaychoose mode of entry such as licensing,joint ventures or direct investment. - Is alwaystoughbecause highcostinvolved. STAGE 6: THE TRANSNATIONAL - The last stage, the size of companies is irrelevant in influencingwhethertheycangoabroad or not. - The small business may develop a global integrated networkthatmay be categorizedastransnational firms. GROWING AND INTERNATIONALIZING THE ENTREPRENEURIAL FIRMS 1. GROWTH - Entrepreneursarisebecauseof the excitementof setting up businessbyindividuals. - In RBV theory, if firms have sufficient resources and capabilities, they may venture into setting up their business. - Inent,agoodvision,driveandmotivationandleadership are the core capabilitiesthat any ent must have inside them. 2. INNOVATION - Is important for entrepreneurs and it allows entrepreneurtobe more sustainable. - Is the competitive advantage of any entrepreneur. With the spirit of innovativeness, the entrepreneur tend to take more risksthan the largerfirms - They will introduce new products and services, new radical waysof doingbusiness
3. FINANCING - People have always been afraid of venturing into something that they are not used to especially the processof raisingcapital. - But the truth is that, there are many investors,bankers, foreignentrants,banksandgovernmentagencieswilling to helpentto start theirbusiness. 4. INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 5. TRANSACTION COSTS AND ENTREPRENEURIAL OPPORTUNITIES INTERNATIONAL STRATEGIES FOR ENTERING FOREIGN MARKETS 1. DIRECT EXPORT - Involve the sale of productsmadebySMEsintheirhome countryto customersinothercountries. - This mode is popularamongSME since it issimpler,less risks and entrepreneurs are able to reach foreign customersdirectly. - Disadvantages = SMEs may not have enough resources to turn overseasopportunitiesintoprofits. 2. LICENSING/FRANCHISING - Usedespeciallyinmanufacturingindustries - Franchising = typically used n service industries such as fast food industry since franchising involves a certain operatingsystem - Advantage = entrepreneur who uses licensing and franchising can expand abroad with little capital since foreign firms that are interested in becoming a licensee/franchiseehave toputtheircapital upfront. - Disadvantage = licensor/franchisor may suffer loss of control over how theirtechnologyandbrand namesare used. 3. FDI - Entrepreneurs may pursue FDI by forming strategic alliances with foreign partners, joint venture, foreign acquisitionsandgreenfieldwhollyownedsubsidiaries. - Advantages = entrepreneurs may be able to control the usage of proprietaryandbrandname. - Disadvantages = any entrepreneur who would like to engage withFDImusthave abundantcapital asthe start- up cost isveryhigh. INTERNATIONALIZATION STRATEGES FOR STAYING AS A DOMESTIC BUSINESS 1. DIRECT EXPORT - Many entrepreneurs do not have enough resources to handle directexport. - They may then resort to indirect exports which become as exportintermediariesthatdo “middleman”functions that linkingsellersandoverseasbuyers. - Ex: in Japan and Korea, they are entrepreneurs who handle 50% of total exports. 2. BECOME SUPPLIERS TO FOREIGNFIRMS - Foreign firms who expand business overseas aimed at cuttingtheircostsoptimally. - Therefore, they are looking for a local suppliers which may loweredboththe costandrisk. - Ex: subwayhad secureda contract withlocal supplierin Irelandtosupplychilledpart-bakedbread.
3. LICENSING/FRANCHISING - Entrepreneurs may consider becoming a licensee or franchisee of anyforeignbrandsandfirms. - This strategyenable entrepreneurstodo businessusing the proprietaryrightsof the owner 4. BECOME ALLIANCE PARTNERS OF FDI - True enough, most of the entrepreneurs unable to compete withestablishedforeigndirectinvestors. - The chancesto compete isalwaysthere butverylimited. - The best approach would be to join forces with foreign investors by being their partner in disturbing foreign brandsand products. 5. HARVEST/EXIT STRATEGY - Entrepreneursmaysellanequitystake orthe entirefirm to foreignfirm - Ex: Seattle coffee, originally owned by Britain’s couple soldto Starbucksto avoidfromlosses. WHEN TO GO GLOBAL (9 QUESTIONS) 1. Do we have global productsor service? 2. Do we have managerial, organizational and financial resourcestointernationalize? 3. Evenif we dohave the resources,are willingtocommitthem and face the risksof internationalization? 4. Is there a country in whichfeel comfortable doingbusiness? 5. Is there a profitable marketforourproductor service? 6. Whichcountry shouldwe enter? 7. Do we have a unique product or service that is not easily copied by large multinational companies or local entrepreneur? 8. Do locationadvantagesexist upstreaminthe value chain? 9. Can we affordto be a multinational? There are 2 method that small business can choose in expanding global: 1. Some firms may follow the stages of international involvement, where each next stage will lead to greater involvement. 2. Small firmsmaybeginasglobal companiesimmediatelyafter the inception.Goingabroadfromdayone – global startup. OVERCOMING BARRIERS TO GO INTERNATIONAL FOR SMALL BUSINESS Barriers: small in size means… 1. Limitedfinancialandhumanresources 2. Lack of economiesof scale toproduce goods and servicesas largerfirms 3. Smallerbizoftenplaguedwithinexperiencedmanagerswith limitedinternational exposure andsometimeswithnegative attitudestowardsforeigncountries. 4. Theyare risk averse andmay viewgoingabroad isnot really profitable forthem 5. Past success with home market may also prevent small businessestoexpandtheirbusinessesabroad.
WAYSTO OVERCOME: 1. THE FIRST IS WAYTO DEVELOP A SMALL BUSINESSGLOBAL CULTURE. - Global culture occurs when an organization has managerial and subordinatesthat view by going global has strategicopportunities. - Thinking global and changing into global mindset is a mustany small businessestoexpand. 2. KEY DECISION MAKERS MUST CHANGE THEIR ATTITUDE IF THEY WANTTO GOABROAD. - For any companies that go abroad, each stage of going abroad requires increasing commitment from the top executivesof the businesses. - Because of different perception and negative attitudes towards internationalization, most small businesses expand their products and services to nearby countries that have similarvaluesandculture. 3. SMALLER SIZE WILL LEAD TO RAPID DECISION MAKING. ADVANTAGEFOR A SMALL BUSINESS IS SPEED. - Since they can decide faster, most of time small businesses can be the first in the market and capture potential salesbefore the largercorporationmayreact. - The ability of speed is important for small businesses as theycan adoptthe newchangesinthe marketplace and the changesin the global demand. SMALL BUSINESS GLOBAL START UP (BORN-GLOBAL FIRMS) 1. Global start-ups occur small businesses go abroad since the day of inception. - The definitionof born-global firmisanyfirmthat purses a global visionfrominceptionandglobalize rapidly. 2. Born global firms are often very flexible and fast moving, especially in the high-tech industry. Tend to be knowledge- intensive intheirarea. 3. Born-global firms tend to market value added offering that comes from the developments of science, technology or design. 4. The offeringsare innovative,progressive,differentiatedand unique. 5. Factors that trigger early internationalizationoffirm(born- global firms) such as: - Size of the firm’shome market - New market conditions in world market (e.g the emergence of global niche markets) - Technological developments in communications and products - Emergence of global networksandalliances - Organizational capabilities 6. 6 fundamentals sources of competitive advantage that born-global firmsneedto attendto: - Continuously focusing on entrepreneurial orientation and innovation. - Abilitytoimproveofferingandretaintechnological edge. - Dynamic engagement of networks of customers, suppliers,partners andexternal stakeholders. - Managing evolution to a more complex organization withoutlosingentrepreneurial competencies.
- Improvingthe abilitytobalance opportunityandrisk. - Possessinganagile andexperimentingorganization. DISTINCTIVE CHARACTERISTICS OF BORN-GLOBAL FIRMS 1. HIGH ACTIVITY IN INTERNATIONAL MARKETS FROM OR NEAR THE FOUNDING - Born-global firms begin exporting their products or serviceswithinacouple of yearsaftertheirfoundingand may exporta quarteror more of theirtotal production. - Most of them advances through subsequent stages of internationalization,collaborationwithforeignpartners, or undertakingof directforeigninvestment. 2. LIMITED FINANCIALAND TANGIBLE RESOURCES - Born-global firmstendtobe relativelysmallandhave far fewerfinancial,human,tangible resourcesascompared to large multinational enterprises that have been consideredasdominantinglobal trade andinvestment. - That is why born-global firms have limited financial and tangible resources. 3. PRESENT ACROSS MOST INDUSTRIES - Many born-global firmsare technologyfirms. - Born-global phenomenon is widely spread beyond the technologysector. - Born-global firms are found in industries such as metal fabrication, furniture, processed food and consumer products. 4. EMPHASIS ON DIFFERENTIATION STRATEGY - Born-global firmstendtoadoptdifferentiationstrategies by developing differentiated designs and highly distinctive products that target niche markets, which may be too small forthe tastesof largerfirms. 5. EMPHASIS ON SUPERIOR PRODUCT QUALITY - Born-global firms are often at the leading technologies edge of theirindustryorproduct category. - They are founded to exploit business opportunities based on the development of new product or services that are better designed and of higher quality than the competitors’offerings. 6. MANAGERSHAVESTRONG INTERNATIONAL OUTLOOKAND INTERNATIONAL ENTREPRENEURIAL ORIENTATION 7. LEVERAGING ADVANCED INFORMATION AND COMMUNICATIONSTECHNOLOGY 8. USING EXTERNAL, INDEPENDENT INTERMEDIARIES FOR DISTRIBUTION IN FOREIGN MARKETS.
CHAPTER 8 FOREIGN DIRECT INVESTMENT RELATED ENTRY MODESTRATEGY 1. FDI is a direct investment made by a company or entity based in one country, into a company or entity based in anothercountry. 2. Or definedasacompanyfromone countrymakingaphysical investmentintobuildingafactoryinanothercountry. 3. Indirect investment = portfolio investment, investing in equitieslistedona nation’sstockexchange. 4. FDI has come to playa major role in the internationalization of firm. 5. Factors that induce firms that adopt FDI are: - Changesintechnology - Growing liberalization of the national regulatory frameworkgoverninginvestmentinenterprises - Changesinglobal capital markets. 6. FDI made in form of direct investment, fixtures, machinery, equipment and buildings and it can also be done through mergersandacquisitionsaswell. HOW HAS FDI CHANGED IN THE PAST DECADE? 1. LICENSING AND TECHNOLOGYTRANSFER - Have beenimportantinpromotingcooperationbetween the academicand businesscommunities. - Since the policy allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces. - Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particulartechnologyisfullydeveloped. - Technologylicensing= agreementwherebyanownerof a technological intellectualproperty(the licensor)allows anotherparty(the licensee)touse,modify,and/orresell that property in exchange for a compensation (consideration). 2. RECIPROCAL DISTRIBUTION AGREEMENTS - Usuallyoccursbetween2companies,withinthe same of affiliatedindustries. - Both agreed to act as a national distributor for each other’sproducts. - Ex: a US based manufacturer of tables signs a mutual distribution agreement with Spanish based manufacturerof chairs. - Both companies gain direct access to each other distribution network without having to pay distributor support payments and other related expenses found withinthe distributionchannel andneithercompanycan hurt the other’smarketforits products. 3. JOINT VENTUREAND OTHER HYBRID STRATEGIC ALLIANCES - Involves 2 firms who are within the same industry who are partneringforsome strategicadvantage. - Reasons for partnering= - i.the needtoaccessthe proprietarytechnology - ii.The desire togainaccess to intellectual - iii.To accessto channelsof distributioninkeyregionsof the world. - JV involves3ormore partiesare usuallycalledsyndicates - Most often formed for specific projects such as large construction/publicworksprojectsthatmightinvolve a
wide variety of expertise and resources for successful completion. BASIC REQUIREMENT FOR EMBARKING USING FDI 1. THE LEVEL OF COMPETITIVENESS - FDI may be considered as an attractive and feasible option depending on the industry sector and type of business. - Fromthe competitiveview,itisimportanttobe aware of competitors who are expanding into a foreign market and howtheyare doingit. - It also becomes crucial to monitor how globalization is affecting domestic clients on their products/services needs. 2. NEW MARKET ANALYSIS - Firm must have realisticassessmentinaspect such as: - Resource utilization, - Local industryandforeigninvestmentregulations, - Governmentincentives, - Profitretention, - Financing,distributionandotherfactorsbefore entering the market. 3. MARKET EXPECTATION - Foreign production or locationbegins to look more cost effectivewhenproductorservice reachesacritical mass of amountandcost. - Anydecisiononinvestingmustcarefullyconsiderfactors: - The feasibilitytooperate inalarge capacitythatwill lead the firmstoacquire economiesof scale inmanufacturing to meetdemandina large market. - Firms must have access to supply chain channel members - And logistic transportation in order to produce and distribute productstointernational market. 4. INTERNAL RESOURCES - EX: does the firm have support from all its stakeholder for the foreigninvestment? - Doesthe firmhave thecapabilitiesandstrongknowledge to go abroad? - These questions need to be taken seriously by the managementof the firmbefore decidingtoembarkin a foreignlandusingFDIto minimizerisks. MERGER AND ACQUISITION (M&A) 1. MERGER = a combination of 2 companies to form a new company 2. ACQUISITION = is the purchase of one company by another inwhichno newcompanyisformed. 3. Merged companies typically will operate on a cooperative basis, while an acquisition involves absorbing part or all of anothercompany. 3 BENEFITS OF ACQUIRING A COMPANY IN THE SAME INDUSTRY 1. ECONOMIES OF SCALE AND INCREASED EFFICIENCY - Acquiring a company in the same industry can result in reducedcostsdue toeconomiesof scale foracombined, larger entity, along with increased efficiency in productionandotheraspectsof businessoperations.Ex: wall-mart
2. EXPANDED MARKET RESEARCH - If a company acquired a second company in the same industry,the mergedentitymaycoveralargerpart of its market. - This may add up new market opportunities in different geographicregion. - Firms may expand its business to a new territory and gathermore demandfor itsproductsand services. 3. TAX AND LEGAL IMPLICATIONS - A profitable company can reduce its tax liability by acquiringalessprofitable companyinthe same industry. JOINT VENTURE JV = the cooperationof 2 or more businessesinwhicheachagreesto share revenues,expensesandassetsincludingprofit,lossandcontrol ina specificenterprise. 1. There are also other types of companies such as JV limited guarantee,andJV limitedbyguarantee withpartnersholding shares. 2. When 2 or more individuals come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a JV where the partiesare Co-ventures. 3. The venture can be for one specific project only and sometimes also is being referred to a consortium or a continuingbusinessrelationship. 4. The consortiumJV (alsoknownasa cooperative agreement) isformedwhere one partyseeks: - Technological expertise ortechnical service agreements - Franchise andbrand use agreements - Managementcontracts - Rental agreementsforone-timecontracts GLOBAL STRATEGIC ALLIANCES (GSA) 1. Usually established when a company wishes to enter into a relatedbusinessornewgeographicmarket –particularlyone where the governmentprohibitsimportsinorderto protect domesticindustry. 2. Typically, alliances are formed between 2 or more corporations, each based in their home country, for a specifiedperiodof time. 3. Their purpose is to share in ownership of a newly formed venture and maximize competitive advantages in their combinedterritories. 6 TYPES OF GLOBAL STRATEGIC ALLIANCES 1. JOINT EXPLORATION - A type of JV thatspecificallyinvolveswithcompaniesthat are extractingminerals,oil andgasexploration. - The act of exploring, penetrating, or ranging over for purposes of discovery, especially of geographical discovery; examination; as the exploration of unknown countriesare jointlytogetherbyfewcompanies - Ex; shell and Petronas signed a contract for joint explorationinsearchforoil andgasinoffshore Sarawak. 2. RESEARCH AND DEVELOPMENT CONSORTIUM - Are formed by manufacturing companies, for the purpose of conducting shared research on new technologiesforthe benefitof theconsortium’smember companies,oftenwiththe supportof government.
- R&D consortia is most frequently formed in the electronics, semiconductor and pharmaceutical industries. 3. CO-PRODUCTIONAND CO-SERVICEAGREEMENT - An international co-production is a production where 2 or more different production companies are working togethertoin a specificproject. - Ex: a co-production agreements enable Canadian and foreign producers to pool their creative, artistic, technical and financial resources to coproduce projects that enjoy the status of national production in the countriesinvolved. - Co-service agreement = agreement entered between a consultant or independent contractor and firms to provide management, consulting or other services for a fee. 4. CO-MARKETING ARRANGEMENTS - Co-brandingisalsoknownas brand partnership. - Brand partnership happens when 2 companies form an alliance to work together in marketingaspects, creating marketingstrategy. - Include sponsorships, ex: accountants Ernst and Young supportthe Monet exhibition. - The typical co-branding agreement involves 2 or more companies acting in cooperation to associate any of various logos, color schemes or brand identifiers to a specific product that is contractually designated for this purpose. 5. LONG TERM SUPPLY MANAGEMENT - The conceptof justintime,leanmanufacturingandagile manufacturing practices – help furthering the implementation strategy of the long term supply managementamongglobal firms. - Other factors that make long term supply change managementfeasibleisdue totechnological changes. - As firms strive to focus on core competencies and becoming more flexible, they may reduce their ownership of raw materials, resources and distribution channels. 6. CO-MANAGEMENTARRANGEMENT - The sharing responsibilities, rights and duties between the primary stakeholders, in particular, local companies and the nationstate - The definitionregardedco-managementassome kindof partnershipbetweenpublicandprivate sectors. - There are 6 facetsof co-managementarrangement: - A. CO-MANAGEMENTASPOWER SHARING - Resource managementfallsunderthe jurisdictionof the central or state government, but there may be arrangements for sharing power and responsibility with businessusers. - B. CO-MANAGEMENTAS INSTITUTIONBUILDING - Governmentmustcreate afavorablepolicyenvironment to assists the emergence of functional co-management arrangements by giving feedback, betweengovernment policyandlocal institutions. - C. CO-MANAGEMENTASTRUST AND SOCIAL CAPITAL - Directuserinvolvementinjointmanagementboardsdid not increase the likelihood of co-operation but the frequent presence of government bodies really increasedthe trustbetweenparties. - D. CO-MANAGEMENTAS PROCESS
- Co-management must agreed on a process for sharing managementrightsandresponsibilities. - E. CO-MANAGEMENTAS PROBLEM SOLVING - Management decision-making means parties have to make choicesbetweendifferentalternatives. - But adaptive management requires collaborative processes to establish consensus among the parties before feedback-basedproblemsolvingcanproceed. - F. CO-MANAGEMENTASGOVERNANCE - Ofteninvolvesadiversityof playersincludingpublicand private sectors. - The polycentric approach recognizes that effective governance often requires multiple links across levels anddomains,andseeksoverlappingcentersof authority. - Such a decision-making structure contributes to the creation of an institutional dynamic appropriate for adaptive co-management and more broadly, for adaptive governance. UMBRELLA HOLDING COMPANY 1. A company that owns multiple chains of majority and minority-ownedoperatingsubsidiaries. 2. A type of business organization that allows a firm (called parent) and its directors to control or influence other firms (calledsubsidiaries). 3. Benefits = getting discounted insurance and benefits. Since most of this type of company isbig,it has to deal withmany insurance policies,payrollcompanies,andstaffingagencies. 4. Most umbrella corporations are among the powerful companies due to the sheer size of their overall workforce. These corporations can often command and receive group benefitsthat,asa result,are lessexpensive. 5. Drawback =theycanoftengrowsolarge thattheyeventually become inefficient.
CHAPTER 10 MULTINATIONAL E-COMMERCE STRATEGIES AND STRUCTURES E-COMMERCE: 1. The selling or trading of services or goods through the internetisreferredtoase-commerce. 2. Thisalsoincludesoffline deliveryof aphysical good 2 kindsof dealings: 1. Business-to-customertransactions - Ex:purchasingtoysfromonlinecompany –amazon.com. theyare commonlyreferredtoasB2C. 2. Business-to-businesstransactions - It refers to trading stuff among business. more commonlycalledB2Btransaction. THE SIGNIFICANCE OF B2B TRANSACTIONS 1. It results from the electronic ties between business and the supplier, which has made the supply chain management possible. 2. The communications between the suppliers and business allows the suppliers to know which of their products are in demandandwishesof theirbusinesscustomers,whereasthe business customers can check their price, availability, shipmentandotherfactorsof theirdesiredgoods. e-commerce value chain STEPS FOR A SUCCESSFUL E-COMMERCE STRATEGIES 1. LEADERSHIP - The leaders of a company such as the CEO and senior executives should have strong belief in the profit of employingane-commerce approach. 2. Improvise current with newe-commerce models - Findwaystoreduce costsorenhance servicesofferedby the traditional business using e-commerce and can be worthwhile atthe same time byaddingvalue toclients. 3. Developingan e-commerce organization - Fullyintegratedoffline andonline operationsusingweb basedsystem. 4. Allocate resourcesto the e-commerce business - The financial, human, technological resources must be committedtothe task. - The e-commerce operations are rendered to 3rd parties or alliance partners when these resources are not presentwithinthe company. 5. Build a superior e-commerce infrastructure as a basis of a differentiationstrategy - The interactionwitheachclientshouldbe personalized. - Transactionsshouldbe rationalizedandsimplified. 6. Have an e-commerce strategy - The e-commerce strategyshouldbe builtonstrongfacts and concernedexperiences. - The recentexperiencesimplythatfor repeatpurchases, a strong brandname is vital. 7. Developappropriate e-commerce system - The alignmentof the e-commerce goalswiththe human resource policiesisalsovitalforappropriate e-commerce systems
8. Measure success - Companiesshouldmake use of metricssoasto measure the successof e-commerce . - Assessment of e-commerce incorporation across external and internal operation and level of top managementdedicationtoe-commerce. OPERATIONAL CHALLENGES FOR E-COMMERCE 1. Difficulttofindpartnershipsandallianceswithcustomersor 3rd parties. 2. It is hard to retain, developand attract employees in the e- commerce division due to shortage of people having e- commerce expertise. 3. Inadequacyintraininganddevelopmentine-commerce. 4. Employee retention thrives on provision of growth opportunitiesandjobfulfillmentine-commerce.Developing waysto ensure employee retentionisadifficulttask. 5. Many e-commerce functions are outsourced by survey companies,buttheyare disinclined(reluctant) tooutsource for functionsof companieswithdirectcustomercontact. STRATEGIES FOR PURE E-COMMERCE COMPANY TO OVERCOME THE CHALLENGES 1. Developmentof systemsof informationandmanagementin orderto respondto rapidgrowth. 2. Maintain rapid creativity, decision making, flexibility and innovation. 3. Concentrate on building external corporate relationships withcustomersande-commerce supportcompanies. 4. Attract and retaintalentwithe-commerce capable skills. 5. Form an effective teamformanagement. STRATEGIES FOR TRADITIONAL COMPANY WITH E- COMMERCE UNIT TO OVERCOME THE CHALLENGES 1. Develop a common goal and ensure commitment to operationof e-commerce throughoutthe organization. 2. Vary the structure of the organizationtoemphasizes aquick rearrangementof capabilitiesandassets. 3. Vary the culture of organization in order build a supportive atmosphere fore-commerce. 4. Attract and retaintalentwithe-commerce capable skills. 5. Change the HR programs in precision with different skill requirementsof e-commerce employees. OPPORTUNITIES VS THREATS FOR MULTINATIONAL E- COMMERCE MAJOR ATTRACTIONS OR PROS OF E-COMMERCE 1. It is comparatively less expensive to approach global customersthroughinternet. 2. The technology to approach anyone with an internet-linked computerisquite common. 3. The efficiencyof electroniccommunicationandprocessesis far greater. 4. The Web operates 24/7 regardless of location or any other factor. 5. Once a website is uploaded, a company’s products or servicescanbe accessedinstantly. 6. Businessesshould predict a 30-40 % return rate for online purchases,if the patternfollowscatalogsales.
UGLY SIDES OR CONS OF E-COMMERCE 1. Construction and maintenance multiple language, tax locations and currencies of Web sites can cost companies millionsof dollarannually. 2. Distribution and retailer that sell a company’s products are undermined by competition from the company’s own website thatsellsproductsdirectlytoendusers. 3. Local competitors can easily copy and replicate a multinational’s product, service, or business model if is displayedinthe web. 4. It is difficulttounderstandthe needsof global customersas there existbarriersof language and culture on the web.It is notsufficientforawebsitetobe multilingual butitmustalso followaformatthat isappropriate culturally. 5. Crossbordercomplexitiesincludepricingforexchangerates, governmentregulationsanddifferenttaxes. 6. Companies must make sure that their global customerswill trust andare satisfiedwithe-commerce andtheirwebsites. PICKING A MARKET Webentrepreneursshouldtargetcountries basedon 2 factors: 1. Inefficientmarkets - E-commerce attracts those markets which possess inefficiencies.In these markets,introducinge-commerce shoppingallowsbuyerstoobtaingoodsof betterquality andlowerpricesastheyare freefromcontrol ofthe state. 2. Attractive demographiccharacteristics - Markets with attractive demographic characteristics shouldbe targeted. - These target markets include locations with the followingcharacteristics: - A. internetpopulationof minimum 5% - B. highliteracyrate - C. country participation in one free trade agreement at least - D. governmenthavingaworkable legalsystem MULTINATIONAL E-COMMERCE STRATEGY IMPLEMENTATION 3 strategiesthatmanagerscantake note: 1. THE MULTINATIONAL E-COMMERCE ORGANIZATION MODEL - Mix the local and global functionsandare 3 tierede.g: - i. the global core is represented by corporate HQ. it harbors the strategy vision and leadership that run the electronic marketing of international products and services. - ii. Shared services are providedby HQ, like the network infrastructure. - Iii. At HQ and the shared functional areas, managers exercise globalresponsibilityfortheirprocesses. 2. TECHNICAL EFFICIENCY AND IMPLEMENTATION OPTIOSN FOR MULTINATIONAL E-COMMERCE - Components of a successful multinational online presence require electronic and technical efficiency as well as support throughout the value chain. Such efficienciesinclude: - 1. Software whichenforcespricinginseveral currencies. These software accept purchase in the customer’s own
currency, as well support payment enforcing systems that exhibitpricesof the productsinmultiple currencies. - 2. Systemswhichare capableof automaticallycalculating and showingpurchase dataonglobal deliveryandduties and local taxeslike the VAT. - 3. Systems that check regulatory compliance with local and internationallaws. - 4. Provisionof supportinmultilingualservicecenters. - 5. Protectionagainstfraud. - 6. In additiontocreditcards,electronicpaymentmodels shouldalsobe used. 3. WEBSITES: TO LOCALIZE OR STANDARDIZE - 1. International sites should be linked to the corporate website - 2. If you have feedback or comment sections in your website,includenon-electroniclocal contactdetails. - 3. A listof languagesusedby company’swebsite should be provided. Such a list marks the commitment to globalizationandmakesglobal usage easy. - 4. If downloads are supported by your site, dedicate a page for global downloadsfordiverse languages. - 5. A site map should be provided for the website of parent company which include links to all other local content. - 6. Privacypolicyof the firmshouldbe providedinall local languages. - 7. Guard yourself against local piracy by providing your policies in local languages as many pirates of web material have claimedthattheywereunaware of thefact that it is illegal tocopybecause theydidnot understand English. - 8. Managementof contentshouldbelocalized.Language localization should be used in the parent company website whichhasthe mostaccess. - 9. Websites should be continuously monitored and updated. This is quite a challenge, as updating is to be done inall the languages.

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GBS CH 3 LEVERAGING RESOURCES AND CAPABILITIES
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GBS CH 2 MANAGING INDUSTRY COMPETITION
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Notes GBS CH 1,2,3,4,5,6,7,9,8 and 10

  • 1.
    CHAPTER 1 FOUNDATIONOF GLOBAL STRATEGY THE IMPORTANCE OF GLOBAL STRATEGY FOR INTERNATIONAL FIRMS 1. Many companies started to globalize their business strategies to gain competitive advantage and due to more barriersto trade beganto collapse. 2. When your companyoperatesinternationally,itwill engage in form of business such as exporting and importing that differfromthose inwhichit engagesdomestically. 3. Physical, social, and competitive conditions differ between countries and influence the optimum ways to perform business. GLOBAL STRATEGY AND ITS DEFINITION - The business strategies engaged by the businesses, companies, or firms operating in a global business surroundingandservingconsumersthroughoutthe world. - Encompassthe variousdisciplinesof marketing,organization theory, business strategy, and international management and centersonmaximizingcompanyperformance. FUNDAMENTAL ISSUES IN GLOBAL STRATEGY AND THE EFFECTS OF GLOBALIZATION 1. The absence of an organizing framework - To integrate the different perspectives in GS, overall framework must consider the costs and benefit present in the differentstrategicalternatives. - Identify the resources to achieve those goals and then proceed to analyze it, integrating both and come up with content-richGS. 2. Achieving competitive advantage - Developedbytakingstrategicmeasurestoreachthe diverse and often, conflicting goals of the organization in the optimum way, the organization must achieve efficiency and be able to innovate and adapt to change by developing internal capabilities. - The strategicmissionof managinggloballyistouseeveryone of the three sources of competitive advantage to optimize effectiveness, risk and learning all together in a global business. 3. World Trade Organization (WTO), Foreign Direct Investment (FDI) andIntellectualPropertyRights(IPR). - Weaknesses in the way that WTO has been structured by inefficiently commanding the economy of the weaker nations by working in a shrouded way in the name of trade liberalization. SOURCES OF COMPETITIVE ADVANTAGE FROM A GLOBAL STRATEGY 1. Economiesofscale fromadmittance tomore customersand markets. Exploit another country’s resources – labor, raw materials. 2. Extendthe product of life cycle – olderproductscanbe sold inlesserdevelopedcountries. 3. Operational flexibility – shift production as costs, exchange rates,etc. change overtime.
  • 2.
    SUMANTRA GHOSHAL OFINSEADproposedaframework: 1. Achieving efficiency in current operations Sources of competitive advantage National differences Benefitingfromdifferencesin factor costs – wages and cost of capital. Scale Economies Expanding and exploiting potential scale economies in each activity. Scope Economies Sharing of costs and investments across products, marketsand businesses. 2. Managing risks Sources of competitive advantage National differences Managing different kinds arisingfrommarket or policy- induced changes in comparative advantages of differentcountries. Scale Economies Balancing scale with strategic and operational flexibility. Scope Economies Portfolio diversification of risks and creation of options and side-bets. 3. Innovation and learning Sources of competitive advantage National differences Learning from societal differences in organizational andmanagerial processesand systems. Scale Economies Benefiting from experience- cost reduction and innovation. Scope Economies Shared learning across organizational componentsin different products, markets or businesses. SCALE ECONOMIES - Has beenknownforlongtime asa major factorin increasing profitability and contributing to a firm’s other financial and operational ratios. - Is about the benefits gained by the production of large volume of a product. - May benefit international firms in gaining competitive advantage from the perspective of internal and external economiesof scale. SCOPE ECONOMIES - Is relatively a new approach to business strategy, and is heavilybasedonthe developmentof hightechnology. - Is linked to benefits gained by producing a wide variety of productsby efficientlyutilizingthe same operations.
  • 3.
    COUNTRIES COMPARATIVE ADVANTAGESSTRATEGIES 1. CCA would normally depend on factor endowments (land, natural resources, labor, size of populations) and created contributionsthatanationis fortunate enoughtoinherit. MICHAEL E. PORTER – PORTER’S DIAMOND MODEL 1. FACTOR ENDOWMENT / CONDITIONS - A situation in the country relating to the tangible and intangible resources such as knowledge, info structure, infrastructure,natural resources. 2. RELATING AND SUPPORTING INDUSTRY - Relatedtothe presence andabsence of supplierandrelated industriesthatare internationallycompetitive. - Competitive suppliers and related organizations may strengthenresearchandinnovationthatleadtocompetitive advantage. 3. HOME DEMAND CONDITION - HD is particularly critical in shaping the attributes of the companies’products. - The more demanding the home-based customers, the more pressure will be createdforproductinnovation. 4. STRATEGY, STRUCTURE AND RIVALRY - The selectionof appropriate strategyplaysimportantrole in determiningcompetitive advantage inaglobal marketplace. - The presence of domestic competitors as well as local competitors forces firms to become more efficient and innovative and to adopt new technologies and hence can helpfirmsachieve competitiveadvantage onaglobal scale. 4 ELEMENTS THAT LEAD TO A NATIONAL COMPARATIVE ADVANTAGES UNDER DIAMOND MODEL: 1. The availabilityof resourcesandskills 2. Informationthatfirmsuse todecidewhichopportunities to pursue withthose resourcesandskills. 3. The goals of individualsincompanies. 4. The pressure oncompaniestoinnovate andinvest. GLOBAL STRATEGY AND GLOBAL BUSINESS ENVIRONMENT - All organizations blend together with their environments, and this interaction is particularly decisive to crafting strategiesforthe global firm. - Global strategy should incorporate all global and regional issuesastheyeffectstrategyandstrategicmanagement. STRATEGY AND LOCATION - Concerns about cultural, institutional, geographical, economic, technological and developmental distance affect decisions about where and how to sell products, source inputsandresourcesandestablishoperations. - Avoiding hazards and exploiting the benefits of differences betweenlocationsisthe essenceof global strategy. GLOBAL STRATEGY AND EMERGING ECONOMIES - Multinational enterprises from emerging economies are absorbing established firms in industrial nations and may well dominateinternationalmergerandacquisitionactivities inthe near future,whereastraditional globalenterprisesare facingfundamental changesintheirnonmarketstrategies.
  • 4.
    TYPES OF INTERNATIONALSTRATEGY 1. INTERNATIONAL STRATEGY 2. MULTIDOMESTIC STRATEGY 3. GLOBAL STRATEGY 4. TRANSNATIONAL STRATEGY Pressure for global integration – standardization (use same strategy). Ex: Coca-Cola (marketing - same around the world) but differentintaste. Pressure for national responsiveness – localization (responding to the national needs).Take considerationstolocal needs.Costmore but benefitgreater. 1. INTERNATIONAL STRATEGY - Adoptedwhentheyaimtoleverage theircore competencies by expandingintoforeignmarket. - Relyonlocal subsidiariestoadministervaluechainsetbythe HQs. Ex: McDonalds, Kellogg’s, Google, Haier, Walmart, Huawei andMicrosoft. A. BENEFITS i. Create value by transferring core competencies and unique productstoforeign businesssectors, where opponentsare unable tocontend. ii. Aids the transfer of skills and ideas from the parentcompanyto subsidiaries. iii. Works well when an organization has core competencies that foreign competitors do not have and when industry conditions do not demand. iv. High degree of global integration or local responsiveness incurs moderate operation expensesyetearnshighprofits. B. LIMITATIONS i. Applying the parent company’s ethnocentric direction across the board to all foreign nations can prove to be setback in dealing with foreign markets. Ex: Google in South Korea and China facingthreatsfromNaverand Baidu. 2. MULTIDOMESTIC STRATEGY - Let the local managersto run the organization. - Unique physical and metaphysical features differentiate national markets. - MultidomesticstrategycallsforHQstodelegate authorityto its foreign subsidiaries. Ex: Johnson & Johnson, Procter & Gamble (P&G). A. BENEFITS i. Delegate authoritytoitsforeignsubsidiaries ii. Highneedforlocal responsivenessandlowneed to reduce costsvia global integration. iii. Minimized political risk given the local position of the company. iv. Lower exchange rate and risk givenreducedthe needtorepatriate fundstothe home office. v. Greaterprestige givenitsnational prominence. vi. Higher potential for innovative products from local R & D. vii. Higher growth potential due to entrepreneurial pursuits.
  • 5.
    B. LIMITATIONS i. Customizingproducts and processes to local marketinevitabilityincreasescosts. ii. Decentralizes control to local managers can collapse the business due to different managementstyle andvalue chaindesigns. 3. GLOBAL STRATEGY - Emphasizes on improving worldwide performance through the sales and marketing of common goals and services with minimumproductvariation. A. BENEFITS i. Emphasize efficient operations and where local responsivenessneedseitherare non-existentor can be neutralized by offering a higher quality product for a lower price than the local substitute. ii. Companiestranslateintocompetitiveadvantage by basingoperationsinthe superiorlocation. iii. The global strategy directs managers’ attention to two absolute production and marketing standards. B. LIMITATIONS i. Countries whose markets demand local responsiveness reduce the attractiveness of the global strategy. ii. The cost sensitivity and standardization bias of global strategy gives MNCs little latitude to adapt value activitiestolocal conditions. iii. Disruptive market changes or product breakthrough can turn a fine-tuned value chain intoa badlyaimedtarget. 4. TRANSNATIONAL STRATEGY - Interconnected consumers, industriesand markets requires an MNC to configure a value chain that can exploit location economiesandcoordinationvalue activities. - Focusonestablishingunique experiencesinlocalmarketand diffuse themthroughoutglobal operation. A. BENEFITS i. Spurs the MNE to differentiate its capabilities from country to country according to prevailing economic,political,legalandculturalconditions. ii. Callsuponmanagersto perfectmethodthatcan take the insightsgainedfromuniqueexperience in local markets and diffuse them throughout global operations. iii. Fine-tuned global integration and local responsiveness. iv. Develop the learning capacity to leverage efficiencies of global integration without ignoringrisingcallsforlocal responsiveness. B. LIMITATIONS i. Difficult to configure, tough to coordinate and prone to performance shortfalls. ii. Difficult to reconcile integration and responsiveness. iii. Developing a network mindset among employees, installing the requisite information
  • 6.
    systems and navigatingthe ambiguity of multi- criteriadecisionsmakingitsexpansive. DRAWBACKS OF GLOBAL STRATEGY 1. Reduce managementeffectivenessinindividual countries 2. Productstandardizationcanresultinproductthatdidn’tfully satisfyconsumer. 3. Using uniform marketing campaign may reduce local adaptation. 4. Integrating competitive moves can further sacrifices revenues, profits or competitive position in individual countries. EMERGENCE OF A NEW TYPE OF GLOBAL CORPORATION 1. Era of “micro-multinationals”– small companies thatare born global andoperate worldwide fromdayone. 2. The emergence of the “metanational” – thrives on the process of seeking out uniqueness that it might exploit elsewhere or that might complement its own existing operations and probably building competitive advantage by uncoveringandtransferringknowledge frommanylocations aroundthe world. 3. Another emerging “cybercorp” – a company that operatesexclusivelyincyberspace andisnotimpactedbythe physical geographyof linesonamap.
  • 8.
    CHAPTER 2 MANAGINGINDUSTRY COMPETITION INDUSTRY COMPETITION DEFINITION AND OVERVIEW 1. Industry – a group companies that are related in their primarybusinessactivities,i.e.producinggoodsandservices that are similartoone another. 2. Adam Smith(1776), model of “perfectcompetition” – price is set by the “market”, all firms are price takers, and entries and existsare relativelyeasy. 3. Late 1930s, amore practical branchof economics,“industrial organization (IO) economics” – emerged whereby its main feature wasa structure -conduct-performance (SCP)model. 4. Structure – structural qualities of an industry (for example, the cost of entry/exit) 5. Conduct – the company’saction(ex,productdifferentiation) 6. Performance – the result of firm conducts in response to industrystructure,whichcanbe classifiedasaverage,below average and above-average. The model infers that industry structure confirms firm conduct (or strategy), which in turn, determinesfirmperformance. 7. The initial objective of IO economics was not to help firms compete, rather, it was to help policymakers better understandhowfirmscompete in order to fittinglyregulate them. FIVE FORCES FRAMEWORK BY MICHAEL PORTER 1. RIVALRY AMONG EXISTING COMPETITORS 2. THREATS OF NEW ENTRANTS 3. BARGAINING POWEROF SUPPLIERS 4. BARGAINING POWEROF BUYERS 5. THREATS OF SUBSTITUTE PRODUCTS 1. RIVALRY AMONG EXISTING COMPETITORS - The larger the numberof firms,the more rivalrywill exist. - Competitors that have similar size, market influence and productoftenvigorouslycompete witheachother,especially if there isno productdifferentiation. - Happens in commercial enterprisesthat produce high value andluxurygoodsthatare acquiredrarelylike mattressesand motorcycle. - The level of capacity utilization, as new capacity has to be added in large percentages in certain industries, and this bringsaboutintense rivalrye.g.shippingcompanies - Slow industry growth or decline makes competition more desperate,oftenusingnewcompetitive idease.g.fastfood. 2. THREATS OF NEW ENTRANTS - Reputable firmsin industry (incumbents) alsohave a vested interestinkeepingpotential brandnewentrantsout. - Due to the lucrative, above average returns some incumbents gain, new entrants are inspired to enter an industry. - 5 elementslinkedtohighentry barriers: i. Incumbents enjoy scale-based low cost advantages (economiesof scale) ii. Proprietary knowledge – patents, maybe too costly for entrantstoinvestnewthings. iii. Know-how – knowledge and expertise of how to make products and serve customers. New entrants typically are not privy to such knowledge and understandsthe customers. iv. Good access to raw material and distribution channels– supplierswillgivegoodoffers/discounts
  • 9.
    to incumbents butnot to the new entrants due to newtrack records. v. Real-estate locations – incumbents able to choose and occupy good locations but new entrants maybe forcedto pay higherrentforsimilarlocations. vi. Product differentiation – incumbent manage to build brand equity through advertising and promotionwhichleadtocustomerloyalty. 3. BARGAINING POWER OF SUPPLIERS (BPS) - Is their capability to raise price and/or decrease value of goodsand services. - 4 conditionssupportand leadtostrong bargainingpowerof suppliers: i. If a fewfirmsrule the supplyindustry,theycouldbe the upperhand. ii. BPS increase tremendously if they provide unique, differentiatedproductswithfewornosubstitutes. iii. Suppliers can exercise strong bargaining power if the local firmsare notimportantcustomers. iv. Forwardintegration –as supplierscanincrease their bargainingpowerif theyare willingandabletoenter the focal industry. v. Powerful suppliers can affect the profits of firms in the focal industry.Firmswill havetostrengthentheir own BP by reducing their dependence of certain suppliers. 4. BARGAINING POWER OF BUYERS (BPB) i. Firms in the main industry are essentially suppliers e.g.automobile componentsuppliers. ii. Buyers can expand their bargaining power if products of an industrydo not produce cost savings or add value forbuyer. iii. Buyerscanhave strongBPif theypurchase standard, undifferentiatedproductsfromsuppliers. iv. Economic constraints allow buyers to increase their BP. v. Backwardintegration –buyersmayenhancetheirBP by enteringthe mainindustry. 5. THREATS OF SUBSTITUTES - Substitutesare normallyderivedfromdistinctive businesses that manage to fulfillconsumers’necessitiesandneeds. - If substitutes have better-quality,function and value when contrasted to existing products, they may swiftly come out to draw a hefty size of customers. E.g. E*trade, Ameritrade, and Scottrade vsMerrill Lynch. - Substitutes can also cause critical threats if switching costs are low. E.g. consumers practically do not have to pay additional cost when switching from sugar to artificial sweeteners such as NutraSweet or Equal. Both are readily available atanyretailer. GENERIC STRATEGIES BY PORTER 1. COST LEADERSHIP 2. DIFFERENTIATION 3. FOCUS 4. SPEED
  • 10.
    1. COST LEADERSHIP -Many companieswilladopt.Configureandcoordinate supply chain. - Primarily shows that a firm’s value proposition of how to battle successfullyonminimizingcostsandmaximizingprices. - Offering the same product value at a lower price has a propensity to draw many more customers into buying the products. - A cost leader frequently positions its product to target customersfor the mass-marketwithmodestdifferentiation. E.g. Walmart A. STRENGTH i. Low-cost advantages lessen the possibility of pricingpressure frompowerfulbuyers. ii. A low cost producer must find ways to reduce the attractive lookof a substitute product. iii. Cost disparityregularlydescendsovertime. B. WEAKNESSES i. The threat of being outcompeted on costs constantlypresents. ii. Costleadersmayinadvertentlycreate trade-offs that compromise the value that customers perceive in a product when they persistently go all out to cut prices. 2. DIFFERENTIATION - Centersonthe mostproficientmethodtotransferitemsthat clientsobserve asvaluableandspecial. - Differentiators’ would normally target customers in well- definedandsmallersegmentswhoare eagertopaypremium costs. - Customers are willing to pay more if the differentiated products are perceived off having unique features, such as prestige or status symbol,quality,sophistication,andluxury e.g.BMW/AUDI cars, Ritz CarltonHotel andetc. - Different clients = different expectation = different perceptionsondifferentquality. A. STRENGTH i. Competition will be diminished each time a company reinventedanddifferentiateditself.Ex. Mercedes-Benz is not going to compete with Proton. ii. Buyers tend to be not too sensitive to prices especiallyforunique products. iii. It is difficult for new entrants to compete with loyal customersthatgo forspecificbrands. iv. Imitation narrows perceived differentiation, renderingdifferentiationmeaningless. B. WEAKNESSES i. The differentiator may not be able to maintain itsleadershipindifferentiationinthe longterm. ii. The differentiator has to deal with persistent effortsof aggressive imitation. 3. FOCUS STRATEGY - Was drivenbythe needsof a specificsegmentorniche of an industry. The segment or niche by type of customer, geographical marketorby productline. - This segment is so unique and usually is served by a much focusedcompany.Mostcompetitorschoosetostayoutfrom thissegment. - A focused firm is either a specialized differentiator or a specializedcostleadere.g.Ferrari,AirAsia,etc.
  • 11.
    4. SPEED - Hasstarted to be noticed by many businesses particularly those that wanted to foray into a foreign market and compete ata global scale. - Explainsthe time lineneededforafirmtomarketitsproduct or servicesandreachthe customers. - Ex. MP3 players andiPod - Speed-BasedStrategies: - Rapid responses to customer request or market and technological changes are important strategy for a firm to gaincompetitive advantage. i. Speedisa part of differentiation ii. It involvesmore thanjustbeingunique iii. Consistsof providingarapidresponse toa customer demand on current products, acceleration new- product development or enhancement, adjusting productions processes promptly and swiftly making decisions. iv. Has been seen as a guaranteed promise for companiestoedge upagainsttheircompetitors. - Competitive advantages: A. Customer responsiveness i. Many consumers have encountered plenty of delays,frustrationandhassle whendealingwith variousbusinessesfromtime totime. ii. Consumerswantrapidresponse andsolutionsto mistakes or problems. Communication is important. B. Product development cycle i. Japanese automakers are well known as championsinreducingthe time takentomarket a product and shortening the product development cycles by focusing strongly on the concepttime (Justintime -JIT) ii. It normally takes quite sometime to conceive, prototype, produce and market totally new vehicle. PRESSURES FOR GLOBAL INTEGRATION 1. GLOBALIZATION OF MARKET - Due to convergence of consumers’ tastes, preferences, lifestylesandglobal buyingpatterns,strategies,suggestthat consumersworldwideseekglobal productswhethertheyare Apple iPods,Samsungplasmascreens,Facebookconnections, Starbucksespressos, Google searchersorZara blouses. 2. EFFICIENCY GAINS OF STANDARDIZATION - Standardization is the handmaiden of globalization, encouragingsupplyconditionsthatproduce volumesof low- cost, highqualityproducts. - That is standardization is the push dynamic that converge consumerpreferences. THE BENEFITS OF STANDARDIZATION TO THE VALUE CHAIN 1. CONFIGURING ADVANTAGES i. Minimizes differences in operating procedures amongvaluesactivities. ii. Providesstandardstoimprove qualityandreliability of value-chainperformance. iii. Drives down the production costs of higher-quality products. iv. Increase competition among suppliers in providing inputsor supportservices.
  • 12.
    v. Simplifies agreementswith join-venture partners and alliance members. 2. COORDINATION ADVANTAGES i. Optimizes routinescoordinationprocedures ii. Improves communication by lowering the transaction costs of information gathering, negotiatingandmarketplanning. iii. Promotes systematic dissemination of ideas and highlightsopportunitiesforcollaborations. iv. Facilitates cooperation among dispersed units by settingstandardsof credible knowledge. PRESSURES FOR LOCAL RESPONSIVENESS 1. CONSUMER DIVERGENCE - Divergences in consumer preferences across countries necessitate locallyresponsive value chains. - Local responsivenesstakesinmanyforms. - Ex. Adapting marketing practices to consumption patterns (AUS – large package in size, JPN – smaller size, single-unit size inpoorercountries) - Adaptingtothese sortsof local preferencesspurscompanies tosacrifice degreesof globalstandardization,aresponsethat requiresfine-tuningthe configurationof valuesactivities. 2. HOST-GOVERNMENT POLICIES - Differences in policies among host-country governments contribute togreatvariabilityinpolitical,legal and economic situationsinvariousmarkets. - Policiessuchastrade protectionism,local contentrules,and national product standards require some degree of local responsiveness and counterbalance the policy shifts toward privatization, economic freedom, legal uniformity, and deregulationthatencourage standardization.
  • 13.
    CHAPTER 3 LEVERAGINGRESOURCES AND CAPABILITIES UNDERSTANDING RESOURCES AND CAPABILITIES 1. Most firms have a bundle of productive resources and capabilities. 2. Resources can be defined as tangible and intangible assets that a firmcan utilize tostrategize itsbusiness. 3. The best way to measure them is through organizing them into 4 categories: i. Financial resources and capabilities – the company financial reliability for example generating internal fundsor raisingexternal capital. ii. Physical resources and capabilities – location of plants, offices, and equipment and access to raw materialsanddistributionchannels. iii. Technological resourcesand capabilities– abilityto invent and create patterns, trademarks and copyrights. iv. Organizational resourcesandcapabilities–planning, command, control, and structure systems in an organization. EXAMPLE OF INTANGIBLE RESOURCES AND CAPABILITIES 1. Human – typically are able to generate knowledge, trust be able toobserve talentandunderstandorganizational culture. 2. Innovation– skillsandassetsforacompanytogenerate new ideasthroughresearchand developmentandinventingnew waysof doingthings. 3. Reputational resourcesandcapabilities –companyabilityto develop and leverage its reputation and image as the best place to work or the best socially responsible company. Reputations is important indicator that signal a company workculture and competitivenessprocess. WHAT IS THE VALUE CHAIN? - The set of linked value-creating activities the company performstodesign,produce,market,distribute andsupport a product. - Value-chain analysis helps managers understand the behavior of costs and existing and potential sources of differentiation. - Separates a firm into: i. Primary activitiesthatcreate anddelivertheproduct. ii. Support activitiesthataidthe individualsandgroups engagedinprimaryactivities. A. PRIMARY ACTIVITIES OF THE VALUE CHAIN i. Product design – the basis of the firm’s advantage that sets the function,characteristicsandaesthetics of the productor process. ii. Operations – activities that transform inputs into finished products, issues of concern include raw material procurement,sourcingcomponents,supply chains, plant location, manufacturing process, parts productionandassembly. iii. Marketing – informing buyers and consumers about products and services. Encouraging consumption by applying the marketing mix, developing sales force, devising packaging scheme, definingthe brandandadvertising.
  • 14.
    iv. Outbound logistics– the task of moving the finished products from operations to wholesalers, retailers or the final consumers. Issues of concern include demand chains, channels, inventory, warehousingandtransportation. v. Service – customer support in term of installation, after-salesservice,complaintshandling,andtraining. Key activities include warranty, captive or independent services networks, market coverage and speedof response. B. SUPPORT ACTIVITIES OF THE VALUE CHAIN i. Material and equipment – management of the procurement, transportation, storage, and distributionof materialsandequipmentnecessaryto conduct primaryactivities. ii. Human resources management – recruiting, developing,motivatingandrewardingtheworkforce of the company.Supervisinglabor-relationsactivities. iii. System and solutions – managing information processing and the development of specialized knowledge of primary activities. Issues involve management information system and process automation, along with integration of relevant technologies such as telecom, wireless and cloud systems. iv. Infrastructure – general management functions that enable day-to-day operation in the company. Activities include accounting and finance, legal and regulatoryaffairs,safetyandsecurity,qualitycontrol, and otheroverheadfunctions. CONFIGURATION: USING THE VALUE CHAIN - The way in which managers arrange the activities of the serviceslikecall centers,applicationprocessingandfinancial consolidation, can be digitizedand hence, located virtually anywhere. - Value chains identifythe format and interactions between differentactivitiesof the company. A. MACRO COST FACTORS i. Differences in wage rates, worker productivity, inflation rates, and government regulations – among the host factors that shape macroeconomics – means costs conducting activitiesvaryfromcountryto country. B. CLUSTER EFFECTS i. Industry cluster – a system of businesses and institutionsengagedwithoneanotheratvarious levels. ii. A particularindustrygraduallyclustersmore and more related value creation activities in a specificlocation. iii. Are geographic concentration of competing, complementary or interdependent firm and industries that do business with each other and share overlapping needs for talent, technology and infrastructure. C. LOGISTICS i. Entails how companies obtain, produce and exchange material and services in the proper place and in proper quantities for the proper value activity.
  • 15.
    ii. Conductingbusinessacrossthe worldopensthe potentialforhightransactioncosts. iii. Minimizing exchange expense by efficiently configuring the location of the value activities is a source of competitiveadvantage. D. DIGITIZATION i. Involves converting an analog product into a stringof zerosandones. ii. Productslike software,music,andbooksas well as services can be digitized and hence, located virtuallyanywhere. iii. Equipped with networked computers, workers can move goods and services anywhere in the worldat a negligible costandcomplication. E. ECONOMIES OF SCALE i. A situationwhereinafirmdoublesitscumulative output yet total cost less than doubles due to efficiencygains. ii. Reductions in the unit cost of a product result from the increasing efficiency that comes with largeroperations. F. BUSINESS ENVIRONMENT i. Companies normally try to configure value chains whether to access or avoid particular countrybasedon itsbusinessenvironment. ii. Companies would weigh various opportunities to streamline value activitiesand improve cost competitiveness. COORDINATION: USING THE VALUE CHAIN - Itisthe waythatmanagersconnectthe activitiesof thevalue chain. - In a global context: the specification of how pieces move aboutthe global game board. - The essence of management and is implicit and inherent in all functionsof management. - Several factor influence value chaincoordination: 1. NATIONAL CULTURES 2. LEARNING CURVE 3. OPERATIONAL OBSTACLES 4. SUBSIDIARY NETWORKS 1. NATIONAL CULTURES i. The globalizationof acompany’svaluechain –design, Finland, inputs sourced, Brazil, production, China, distribution,USA,services,Mexicopressesmanagers to understand how foreign cultures influence coordination. ii. Also impose hurdles in coordinating a transaction fromone stage of the value chainto another. iii. Units anchored in individual versus collectivist cultures may disagree over information sharing or collaborationresponsibilities. 2. LEARNING CURVE i. Asmanagersuse andimprove coordinationpractices, their increasing proficiency improves the performance of the value chain. ii. Managers learn by recurring experiences how to transfer best practice from country to country,
  • 16.
    therebygaininginsightsofthe valuechainasawhole insteadof acollectionof parts. iii. Ex.AnMNEmayhave factoriesindifferentcountries, such as Japan,Mexico whichmanufacture the same productapplydifferentproductionphilosophies. 3. OPERATIONAL OBSTACLE i. Operating internationally inevitably runs into communication challenges because of time zones, differinglanguagesandambiguousmeanings. ii. Companies rely on browser-basedcommunications methodstocoordinate thehandoffsfromlinktolink. iii. The thinking goes that electronically linked producersandretailerscanlowercoordination costs throughoutthe value chain. iv. Electronic transactions boost efficiency by reducing intermediary transactions and the associated unneededcoordination. 4. SUBSIDIARY NETWORKS i. The growing prevalence of social networks provides perspectivesformanagers to betterunderstandthe dynamicsof theirsubsidiarynetwork. ii. Managers coordinate the value chain so that it enables efficient transactions and ideally fortifies core competenciesthroughoutthe global network. iii. The advent of social networks, such as LinkedIn, Facebook. iv. Network dynamics show that workers are more inclined to communicate and collaborate with simultaneously contributing and participating in coordinatingthe value chain. THE VRIO FRAMEWORK - Barneyand Hesterly (2006),describe the VRIOframeworkas a good tool to examine the internal environmentof afirm. - VRIO stands for 4 questionsone must ask about a resource or capability to determine itscompetitive potential: 1. THE QUESTION OF VALUE - Does a resource facilitate a firm to develop environmental opportunity,and/orneutralizeanenvironmentalthreat? 2. THE QUESTION OF RARITY - Is a resource presently ruled by only few competing firms creating dominant power of suppliers? Are the resources used to make the products/servicesor the product/services themselvesexceptionallyuncommonandirreplaceable? 3. THE QUESTION OF IMITABILITY - Do firms without a resource stumble upon difficulty on a coast in obtaining or developing it? Will companies find it difficulttoimitate the products/services? 4. THE QUESTION OF ORGANIZATION - Are a firm’s other policies and procedures organized to maintain the utilizationof its valuable, rare, and costly-to- imitate resources?
  • 17.
    CHAPTER 4 EMPHASIZINGINSTITUTIONS, CULTURES AND ETHICS UNDERSTAND THE CONCEPT OF INSTITUTIONS, THEIR FUNCTIONS AND ABILITIES TO REDUCE UNCERTAINTY 1. Defined as regulatory, normative, and cognitive structures and activities that provide stability and meaning to social behavior. 2. Institutions = a platform to set the ground rules to govern the interactioninanorganization. 3. Organization = people (employees) who are pursuing commondeterminationinbusinessorgovernment. 4. An institutional framework that governs individual and firm behavior is made up of formal institutions and informal institutions. A. FORMAL INSTITUTIONS i. Iswhere the governmentenactandenforce laws, regulations and rules e.g. copyright laws, IPR, competitionpolicyandcontractlaws. ii. Business must abide with these rules and regulation. iii. Any violation of government laws is subject to actionthat leadsto prosecution. B. INFORMAL INSTITUTIONS i. Not a pre-establishedsetof rulesthatindividual and firm must abode but it is more of norms, cultures and ethics that governs how they behave. ii. e.g. inthe contextof culture,Japanesewhomare known for their work culture practices e.g. Honne and Tatemae. iii. Honne = one’strue feeling,true desiresandtrue opinions iv. Tatemae = behaviors and opinions displayedin public. 5. It can be concludedthattheykey functionof institutionisto minimize risks associated with doing business by reducing the uncertainties. 6. Business uncertainty can be the results of economic and political uncertainties. 7. Economic uncertainty = relates for example the failure to complete transactionsasinterpretedincontracts. 8. Political uncertainty =includesanychangesinthe political environmentthatcan affectbusinesslong-termplanning. INSTITUTION-BASED VIEW 2 Main propositions: 1. Managers and firms consciously pursue their interest and strategies within institutional constraints. i. E.g. firms pursue counterfeiting strategies as their strategic choice as there are weak institutional environment in whichthere are weakprotection on intellectual propertyrights.
  • 18.
    2. Combinations offormal and informal institutions are supposed to govern firm behavior. i. When formal institutions fail to lead firm to achieve competitive advantage, firm will then turn to informal institutiontoreduce uncertainty. ii. This informal institution in commonly refers to political resources in which firm rely on political influencetogaincompetitiveadvantage. THE STRATEGIC ROLE OF CULTURE 1. Culture – the collection of values, beliefs, behaviors, customs and attitudes that differentiate one society from another. 2. The collective programmingof the mindwhichdistinguishes the members of one group or category of people from another. 3. Not inherited but is learned by people and encouraged by societiesandgovernment. 4. Not static, it changes as society undergoes change, new tradition may be introduced and inculcated within the society. PROBLEMS IN DEALING WITH CULTURE DIFFERENCES 4 Cultural variables that affect company to adjust: 1. COMPANY AND MANAGEMENT ORIENTATION - 3 cultural orientations: A. Ethnocentrism - A belief thatone ownwayof doingthingsisthe best,andwill not seektoadapt to local culture practices - They tend to project their values on others and see foreign culturesasodd or of little ornovalue tothem. B. Polycentric - A belief thatfirmmustseektodothingsthe waylocalsdo. - Followsthe local culture C. Parochialism - A belief that the only way to do something is the way it is done inone’sownculture. 2. HOST SOCIETY ACCEPTANCE - It is much easier for firm to succeed in foreign land should the hostcountry isreceptive toforeignwaysof doingthings. - Ex, the introduction of new product, technologies or operatingprocedures. 3. DEGREE OF CULTURAL DIFFERENCES - Some countries are similar to other countries and share many common characteristics such as language, religion, geographiclocationandlevel of economicdevelopment. 4. ABILITY TO ADJUST TO FOREIGN CULTURE - Inabilitytoadjustto foreignculture issometimesassociated withculture shock. - i.e., the frustration of having to adjust to vast different culture andexpectations. IMPACT OF CULTURE ON BUSINESSES 1. Cultural playsa critical role for firm whenenteringa foreign market. 2. Most common mistake done by firms is the inability to understanddifferentculture whichmaycause a devastating effect. 3. Cultural sensitivity training – can help to avoid culture blunders.
  • 19.
    4. Cultural sensitivity– a state of heightened awareness for the valuesandframesof reference of the hostculture. 5. Managerscan use varietyof well-knownframeworksthatare useful inunderstandingthe manydimensionsof culture. 6. E.g. Hofstede culture dimension,FonsTrompenaar’sculture dimension,the GLOBEstudy. THE STRATEGIC ROLE OF ETHICS 1. Ethics – the principles of what is right and wrong that individual and firm use to make strategic choices to guide theirbehavior. 2. Business ethics – the acceptedprinciplesof rightor wrong governingthe conductof businesspeople. 3. Ethical strategy –a strategy,or course of action, that does not violate these acceptedprinciples. 4. Code of ethics/conducts – outlined what can or cannot be done withinaparticularsetting. IMPACT OF ETHICS 3 different views: 1. Positive view – suggestthat firmsare self-motivatedtoact and behave ethically regardlessof any social pressure to do so. 2. Negative view –arguesthatfirmisa followerinwhichthey jumpontothe “bandwagoneffect–followingwhatothersdo” under social pressure to appear more legitimate without necessarilybecomingmore ethical. 3. Instrumental view – maintains that ethical behavior is a useful instrumentthatcanleadto firmprofitability. ETHICS IN INTERNATIONAL BUSINESS 3 Guiding principles: 1. RESPECT FOR HUMAN DIGNITY AND BASIC RIGHTS - Basic rightsinclude matterspertainingtohealth,safety. - The needfor educationinsteadof workingat the youngage and this should determine the absolute, minimal ethical thresholdsforall operationsaroundthe world. 2. RESPECT FOR LOCAL TRADITIONS - It suggests for cultural sensitivitywhen dealing with foreign traditions. - E.g. nepotism or hiring employees’ children and relatives rather than qualified applicants is illegal according to U.S. equal opportunitylaw. 3. RESPECT FOR INSTITUTIONAL CONTEXT - Thiscallsfor careful understandingof local institutions. - Establishingacode of conduct that ban briberyislessuseful unless supplemented with specific guidelines on the scale and scope of locallyappropriate giftgiving.
  • 20.
    CHAPTER 5 GLOBALCOMPETITVENESS DYNAMICS WHAT ARE COMPETITVE DYNAMICS AND COMPETITOR ANALYSIS? 1. One of the strategic decisions a firm must pursue when enteringaforeignmarketconcernsthe timingof entry. 2. Certain issues need to understand in discussing strategic decision: - Why does a firm pursue certain strategies and not the alternatives? - Consequently, how do other respond to the strategies pursued? - What are the performance outcomes of these actions and responses? COMPETITIVE DYNAMICS 1. Refertoactionsand responses takenbycompetingfirms. 2. In this competitive global business environment, firms continuously seek to gain competitive advantage over the other. 3. A firm’sstrategytoenhance theircompetitivenesswillresult inresponse andactionsby others. 4. Firms must be able to identifyand predict how competitors will respondtotheirinitiatives. 5. Ex: firms that want to be a “first-mover” must be prepared with the possibility of others following and rivals being able to become betterthanthem. COMPETITIVE ANALYSIS 1. Givesa firma strong marketunderstanding. 2. It refers to the assessment of the strength and weaknesses of currentand potential competitor. 3. Alsoreferstothe abilityof firmstounderstand of theirown. 4. By incorporating competitor analysis as part of a firm’s strategyformulation,firmsare able to adapt and buildtheir own strategies to be able to compete effectively, improve performance,andgainmarketshare intheirbusiness. COMPETITION LEADING TO ACTION AND RESPONSE STRATEGIES 1. Military analogy is applied in business because the marketplace is seen as a battlefield characterized by aggressive competitionbetweenfirms. 2. Terms like “price war”, “attack”, “counterattack” are commonstermsusedinmilitary. 3. Businessfirmscompete overmarket. 4. Global firm may compete in multimarket known as multimarketcompetition. 5. Multimarket competition exists whenthe firm is competing with the same rival in multiple markets. Ex: both Coca Cola and Pepsi presentinalmosteverymarketinthe world. 6. Firm must recognize the capability of rivals to strike back in multiple markets and this multiple market competition may leadto reductionof competitionintensityamongrivals. 7. Mutual forbearance – reduction of competition intensity. Leadingtotolerance andself-controlamongrivalswithinthe industry.
  • 21.
    COMPETITVE DYNAMICS MODEL -A comprehensive model on competition from the perspective of “action”and“response”asstrategy. - This model is basedon 3 perspectiveswhich are: - 1. Industry-basedconsiderations - 2. Resource-basedconsiderations - 3. Institutional-basedconsiderations 1. INDUSTRY-BASED PERSPECTIVE - The basis of IBP using Porter’s 5 Forces is the rivalry among existingfirmsinthe industry. - Competition may eventually lead to devastating effect for the entire industry,firmsmayresorttocollusion(agreement) to reduce the effectof competitiononfirms. - IBP focuses on – nature of collision (tacit and explicit), industry characteristics that lead to collusion and prisoner’s dilemma. - A. Collusion - Referstocollective attemptstoreduce competition. - i. Tacit collusion - referstoanindirectinitiativebyfirmstoreduce competition. - Occurswhenthe firmssignaltheirintentiontootherindustry players to reduce output in order to maintain pricing above competitivelevel. - Ex: mutual forbearance - ii.Explicit collusion - Referstoa directmove byfirmsto reduce competition. - Occurs where industryplayersdirectlynegotiate onmatters to pertaining output, pricing and divide market to reduce competition. - Formation of cartel = an entity consists of existing industry players who agree to fix output and pricing to safeguard market. - Also known as trust = members have to trust each other to honortheiragreement. - B. Prisoner’sDilemma - Industry players may agree to set pricing in an attempt to reduce competition. - Although industry players have prior agreementto fix price, theystill have strongincentivestocheat. - The ultimate effect is both parties will suffer from weak performance. - BASIS FOR COLLUSION – INDUSTRYCHARACTERISTICS - Industrybasedconsideration - Collusionhappenswhenindustryplayersforeseethatfurther competitionisnotgoodforthe firmsandthe entire industry. - Hence, they resort to collective agreement to preserve marketthroughcollusion. - Industry characteristics and possibilityof collusion vis-à-vis competition COLLUSION POSSIBLE (UNLIKELY COMPETITION) - Few firms (high concentration) - High frequency, lowvalue orders - Existence of an industryprice leader - Friendly social relationships among rival managers - Homogenous product(similar) - Highentrybarriers - Stability of demand, supply andtechnology - High market commonality (mutual forbearance)
  • 22.
    COLLUSION POSSIBLE (UNLIKELYCOMPETITION) - Many firms (low concentration) - Low frequency, highvalue orders - No industry price leader - Distant social relationships among rival managers - Heterogenous products(various) - Low entrybarriers - Rapidly growing demand, supply and technology - Lack of market commonality (no mutual forbearance) - Factors that enable possible collusion: - 1. Fewfirms (highconcentration) - The possibility of rival firms to collude depends on the numberof firmswithinanindustry. - Higherconcentrationreferstothe existence ofonlyfewfirms, whereaslowconcentration referstomanyfirms. - The higher the concentration the easier it is to organize collusion. - 2. Existence ofan industryprice leader - 3. Homogenousproduct - Has a tendency to collude as they are competing on price rather thanproduct differentiation. - Competingonprice will leadtoaruthlessimpact - 4. Stabilityof demand,supplyand technology - If there is a rapid demand, supply, technology, collusion is lesslikelytohappenasit leadstogrowingmarketshare. - 5. High frequency,lowvalue orders - 6. Friendlysocial relationshipsamongrival managers - Leads to a better chance that they will be able to reach a collective agreement pertaining to industry output and pricing. - Ex: if managers among rivals were fromthe same university or from the same social club, it is more convenient for collusiontotake place. - 7. High entry barriers - Like the airlines industry is more likely to collude than low entry barriers like restaurants as new entrants may ignore the existingindustryorder. - 8. High market commonality(mutual forbearance) 2. RESOURCE BASED CONSIDERATION - Based on VRIO framework, resource familiarity that lead to competitive advantage that enables firms to engage in strategicactionsand compete successfully. - A. Value = Inthe contextof competitivedynamics,the ability to attack in multiple markets causing rivals to become vulnerable isconsideredvalue. - B. Rarity = firms with rare assets are generating significant advantage. - C. imitability= strategythat is highlyimitable posesariskto firms. Hence, firms with inimitable, complex strategies, and able to move quicklyoftenhave betterfinancial andmarket performance. - D. Organization = some firms are organized to withstand competition while others may have to opt for collusion. A more centrallycoordinatedfirmmayengageincollusionwith a looselycontrolledfirm. - E. Resource Similarity = firms with relatively similar resources are likely to possess similar strengths and weaknesses.
  • 23.
    3. INSTITUTION-BASED CONSIDERATION -Understandingthe role of institutions-basedviewleadtothe recognitionthatfree marketsystemisnotnecessarilyfreein that institution may govern competitive dynamics in domesticandinternationalcompetition. - A. Formal InstitutionGoverningDomesticCompetition - Refers to competition policy = determines the institutional mix of competition and cooperation that give rise to the marketsystem. - Commonly used, antitrust policy = this policy is designed to fight against the issue of monopolies, cartel and trust and usedwidelyinUSand otherdevelopednations. - The focal point of competition/antitrust policy focus is pertainingto the issue of pricingwhich include: - i.Collective PricingSetting= it iswhere the collusionparties setpricesat a level higherthanthe competitive level. - ii.Predatory pricing = isdefinedbyUSlawsas - a) settingpricesbelowcostsinthe shortruntodestroyrivals, - b) intending to raise prices to cover losses in the long run aftereliminatingrivals. - iii. Extraterritoriality = is imposing one’s laws to other countries. - B. Formal InstitutionsGoverningInternational Competition - i. Dumping - definedassellingbelowcostinforeignmarketand planning to raise pricesaftereliminatinglocal rivals. - 4 possible outcomesofantidumpinginvestigation: - 1. If foreign firm fail to provide the requested data, authorities will use data provided by the accusing firm as evidence,thatgive accusingfirm a betterchance to winthe case. - 2. If however,foreignfirmsdoprovidecostdata,the accusing firmcanstill accuse foreignfirmof lyingandthatforeignfirm ispracticingunfairpricing. - 3. In the case where the cost data are verified, US antidumping laws allowthe accusing firm to argue that the data are misleading. - 4. The lastoutcome isthatitispossiblethatforeignfirmwins the case,but thisseemsveryunlikely. - ii.Export Cartels - Is firm alliances or collusion that collaborate in exporting. Theiractionsinclude settingquotaandfixingprices. - Although in a domestic setting or sometimes even encouragedif itpromotesexportsof thatparticularcountry. - C. Informal Norms AndBeliefs - The behavior of individuals and firms are influenced by certainvalues,beliefsandnorms. - Ex: given some new norms such as investing in emerging economieslike chinaandMexico,manywesternfirmsoften imitate eachother withouta clear understandingonhow to make it work. - Ex: where Asians view trust-based relationships among individuals or firms as normal and beneficial, whereas Americanviewthemascollusion.
  • 24.
    ATTACK AND COUNTERATTACK -Attack = refersto an initial setof actionstogaincompetitive advantage - Counterattack = consequently refers to a set of actions in response toattack. - 3 main typesof attack: - 1. Thrust = a firm launches direct attack to dominate a particular market with the intention to oust its director competitor. - Must satisfy 2 conditions: - 1. Both rivalshave relative strength, - 2. Both rivalsrecognize the importance of the markets. - 2. Feint = under this strategy a firm attack competitor’s important market so that the competitor will be occupied defendingthe market. - Based on a military strategy in deceiving the opponent. in fact, the attacking firm has no intention to dominate that market. - 3. Gambit = a firm has to surrender its low-value market in order to capture a high-value market (similar to strategy of scarifyingapawnin a chessgame). - Can be viewed as an exchange of the sphere of influence which resulted in both gain stronger position in only one market. - Must satisfy 2 conditions: - 1. Rival has a significantstake inthatmarket, - 2. Rival must perceive one party withdrawal to be genuine and credible. FACTORS THAT LEAD TO COUNTERATTACK 1. Awareness - Rival is aware that one’s action is to drive away its position fromthe market. - If the firm being attacked is aware of the attacking firm’s intention,mostlikelyitwill counterattack. 2. Motivation - The firm being attacked have the motivation to counterattack.Thismotivationcomesfromthe fact that the marketissignificantlyimportanttothe firmbeingattacked. 3. Capability - The firmbeingattackedhave all the resourcesandcapability to launchcounterattack. - Althoughthe firmbeingattacked is aware and motivatedto counterattack, but if it does not have the capabilities and resourcesto counterattack,thencounterattackwill nottake place.
  • 25.
    CREATING HEALTHY COMPETITIONSTHROUGH COOPERATION 1. Nonaggression - Is whena firmavoidfromintimidatingothers. - Refers to nonthreatening ways of doing business so that it will notprovoke otherstoattack one’score business. 2. Market Entry - Firmmayentera newmarketbutnotina waythatchallenge the existingplayersbuttoseekmutual forbearance. - MNEs in known for pursuing each other, entering one countryafter another. 3. Truce Seeking - Firmcan senda signal fora truce, - Ex: by announcing a price increases in a middle of a “price war”. - By sending this signal, firm expect others to follow as a prolongprice war hurtsthe profitsof all rivals, 4. CommunicationVia Government - Directnegoamong rivalstofix pricingisillegal. - Hence, firm can send signal to rivals to reduce competition viagovernmentinvolvement. 5. Strategic Alliance - Firms can cooperate by organizing strategic alliances with competingfirmsforcostreduction.
  • 26.
    CHAPTER 6 COUNTRYEVALUATION AND SELECTION THE IMPORTANCE OF LOCATION 1. Because all companieshave limitedresources,theymustbe careful in making the followingdecisions: - A. in which countries to locate sales, production and administrativeandauxiliaryservices. - B. the sequence forenteringdifferent countries - C. the amount of resources and efforts to allocate to each countrywhere theyoperate 2. Acompany shouldbeginbyanalyzing3factors: a) objectives b) its competencies c) comparative environmental fit in the countriesunderconsiderations. COMPARING COUNTRIES THROUGH SCANNING STEP 1: SCANNING - Is like seedingwidelyandthenweedingout - It is useful insofar as a company might otherwise consider too few ortoo many possibilities. SCANNING VERSUSDETAILED ANALYSIS - Withoutscanning, a company may: - A) Overlookopportunitiesandrisks - B) examine toomanyortoo fewpossibilities - Scanning allow managers to examine most or all countries broadlyandthennarrow themto the mostpromisingones. - Managers compare country information that is readily available, inexpensive and fairly comparable – usually without having to incur the expense of visiting foreign countries. - They analyze publicly available information and communicate with experienced people on conditions that couldsignificantlyaffectthesuccessandfitfortheirbusiness. 4 types ofquestions: 1. Yes or no for a question like, does the country allow 100% ownershipof FDI? 2. Direct statistics for question such as, what is the highest marginal tax rate on corporate earnings? 3. Indirect indicators for question such as, what are the potential salesformyproduct? 4. Qualitative assessmentforquestionsuchas,whatwillbe the future political leaders’philosophyaboutIB? STEP 2: DETAILED ANALYSIS - Once narrowing the no of countries, managers need to compare the feasibilityanddesirabilityof each. - Unless they are satisfied to outsource all their production and sales, they almost always need to go on location to analyze andcollectmore specificinformation. - The more time andmoneycompaniesinveston examiningan alternative, the more likely they are to accept it, regardless of its merits – a situation known as an escalation of commitment.
  • 27.
    OPPORTUNITY AND RISKVARIABLES OPPORTUNITYVARIABLE 1. OPPORTUNITIES: SALES EXPANSION 2. OPPORTUNITIES: RESOURCE ACQUISITION RISK VARIABLE 1. FACTORS TO CONSIDER IN ANALYZING RISK 2. POLITICAL RISK 3. FOREIGN-EXCHANGERISK 4. NATURAL DISASTER RISK 5. COMPETITIVE RISK OPPORTUNITYVARIABLE 1. OPPORTUNITIES: SALES EXPANSION - Probably companies’ most motivating factor for IB engagementbecause managersassume thatmore saleswill leadto more profits. - ExaminingEconomic and DemographicVariables: - A. OBSOLESCENE AND LEAPFROGGING OFPRODUCTS - Consumers in developing economies do not necessarily followthe samepatternsasthose inhigher-income countries. - Ex: Chinese consumers have largely leapfrogged landline telephonesbygoingfromphonelesstocell phones. - B. PRICES - If pricesof essentialproductsare high,consumersmayspend more on these products than what one wouldexpect based onpercapita GDP,thushavinglesstospendondiscretionary purchases. - Ex:the expendituresonfoodinjapan,forinstance,are higher thanwouldbe predictedbyeitherpopulationorincome level because food is expensive and work habits promote eating out. - C. INCOME ELASTICITY - A common tool for predicting total market potential is to divide the percentage of change in product demand by the percentage of change inincome ina givencountry. - The more that demand changes in relation to income changes,the more elasticisthe demand. - Demandforthe necessitiessuchasfoodisusuallylesselastic thanisdemandfordiscretionaryproductssuchasflat-screen TVs. - D. SUBSTITUTION - Consumers may substitute certain products or services differentlyinone countrythaninothercountries. - Ex: in Venezuela, an economic downturn caused a huge switchfromtraditionallypopularexpensiveScotchwhiskyto rum, whichwaslessexpensive. - E. INCOME INEQUALITY - Where income inequalityis high, the per capita GDP figures are lessmeaningful. - Many people have little spend, while many others have substantial spendingmoney. - Ex:highincome inequalityhasresultedinaverysmallmiddle classin mostsub-SaharanAfricancountries. - F. CULTURAL FACTORS AND TASTE - Countries with similar per capita GDPs may have different preferences for products and services because of values or tastes. - Ex: the large Hindu population in india reduces per capita meat consumption there. However, there is a large niche marketof Indianswhoare neitherhindunorvegetarian.
  • 28.
    - G. TRADINGBLOCS - Althoughacountrymayhave asmall populationandGDP,its presence ina regional tradingblocgivesitsoutput access to a much largermarket. - Ex: Uruguay has a small domesticmarket,butitsproduction has duty-free access to 3 other countries in the Southern CommonMarket (MERCOSUR) 2. OPPORTUNITIES: COST CONSIDERATION OF RESOURCE ACQUISITION - Companies undertake IB to secure resources that are either not sufficiently available or too expensive in their home countries. - They may purchase these resources from another organization, or they may establish foreign investments to exploitthem. - A. LABOR - Is important factor in companies’ production location decisions. - Althoughcapital intensityisgrowinginmostindustries,labor compensation remains an important cost for most companies. - Scanningallowscompaniestoexamine suchfactorsas labor market size, labor compensation, min wages, education levelsandunemploymentrates. - Labor is nothomogeneous. - Enteringacountrywithashortage of requiredlaborskillswill require MNEs to train, redesign production, or add supervision –all of whichare expensive. - B. INFRASTRUCTURE - Infrastructure problemsmayaddtooperatingcosts. - Poor internal infrastructure may easily negate cost differencesinlaborrates. - Inmanydevelopingcountries,infrastructureisbothpoorand unreliable,whichaddstocompanies’costsof operating. - C. EXTERNAL CONNECTIONS - IB requiresdiverse levelsof cross-national integration,all of whichincurtime and costs. - HQ personnel visit foreign locations to support control efforts. - Companiesneedasmoothflowof shipmentsastheyimport and exportamongtheirfacilitiesindifferentcountries. - D. GOVERNMENTAL INCENTIVESAND DISINCENTIVES - Gov. promote inward foreign investment to create jobs, enhance competitivenessandimprove trade balances. - Through ads, investment missions and foreign consular activities. - Companiespreferoperatingincountrieswhereredtape and corruption are minimal and where legal transparency and lawenforcementare high. RISK VARIABLE 1. FACTORS TO CONSIDER IN ANAYZING RISK - A. Companiesandtheirmanagersdifferin theirperceptions of what is risky, how tolerant they are of taking risk, the returns they expect and the portion of their assets they are willingtoputat risk. - B. one company’s risk may be another’s opportunity. - Companies offering security solutions (alarm, guard services)may find their biggest sales opportunities where othercompaniesfindonlyrisks.
  • 29.
    - C. companiesmay reduce their risks by means other than avoidinglocations, such as by insuring.Butall these options incurcosts. - D. there are trade-offs among risks. Avoiding a country where, say political risk is high may leave a company more vulnerable to competitive risk if another company earns goodprofitsthere. - E. risksmay occur for suppliersand within suppliers’ supply chains, thus companies need to examine the complex external dependenciesandvulnerabilitiesof itssuppliers. 2. POLITICAL RISKS - A. ANALYZING PAST PATTERNS - Predictingpolitical riskbasedon past patternis problematic because situationsmaychange. - A country’s overall political situation masks differences withincountriesandfordifferentfirms. - B. EVALUATIING OPINIONS - Because influential people mayswayfuture political events, managers should evaluate statements by political spearheads to determine the philosophies on private business, foreign business relations, means of effecting economic changes, and feelings toward given foreign countries. - C. EXAMINING SOCIAL AND ECONOMICCONDITIONS - Frustrated groups may disrupt business by calling general strikes,destroyingpropertyandsupplylinesandcausingthe downfall of governmentleaders. 3. FOREIGNEXCHANGE RISK - A. Exchange Rate Changes - The change in foreign currency value is a 2-edged sword, dependingonwhetheryouare goingabroadto seeksalesor resources. - B. ImmobilityOf Funds - When a company exports to or invests in a foreign country, itprefers international mobilityof itssalesreceipts,earnings and capital there. - Withoutthe mobility,manyfirmseitherforgooperationsor expectahigherrate of returnthere than elsewhere. 4. NATURAL DISASTER RISK - A. MOTHER NATURE CATASTROPHES - Each year,hundredsofmillionsof people are exposedtorisks from earthquakes, cyclones, flooding, drought, volcanic eruptions,risingoceanlevel,mudslidesandtornados. - These disastersupsetmarkets,infrastructureandproduction while damaging companies’ property, injuring their personnel andincreasingtheirinsurancecosts. - B. DEBILITATING DISEASES - The incapacitating effects of disease have an impact on several facetsof businessoperations. - Ex: because of both Ebola and Zika, companies decreased business travel to distressed areas, thus hindering their buyingprogramsand oversightof subsidiariesthere.
  • 30.
    5. COMPETITIVE RISK -A. COMPATIBILITY FOR COMPANIES’OPERATIONS - Companies encounter less familiar environments abroad than at home, their operating risks are normally higher abroad. - Managers initially prefer to operate where they perceive conditionstobe more similartotheirhome country. - Liability of foreignness = MNEs have a lower survival rate than local companies for many years after they begin operations. - B. DIVERSIFICATION OF LOCATIONS - Operatingineconomicallydiverse countrieswhose business cycles are not highly interrelated may enable companies to smooththeirsalesandprofits, whichinturnis an advantage inraisingfunds. - Giventhe growthinproductcomplexity,technologycontent, andcompanies’productspecialization,there isaneedtotap knowledge emanatingfrommultiple companies. - C. FOLLOWING COMPETITORS OR CUSTOMERS - Oligopolistic reaction = managers may purposely crowd a market to prevent competitors from gaining advantages there thattheycanuse toimprove theirpositionselsewhere. - Location decision is made on the basis of a competitor’s action rather than on location-based characteristics such as the cost of laboror marketsize andgrowth. - Agglomerationby nationality = occurs whenfirmsfrom the same home country, regardless of industry, cluster in a location. - D. HEADING OFF OR AVOIDING COMPETITION - Companies mayseekcompetitive advantage by:2 - 1) beingfirstintoa foreigncountry - 2) avoidingacountry entrywhere competitionsisstrong - 3) movingquicklybywhateveroperatingmode intoasmany marketspossible. COUNTRY COMPARISON TOOLS There are 2 most common tools in scanning: 1. Grids - May depictacceptable orunacceptable conditions - Rank countriesbyimportantvariables 2. Matrices allowcompaniesto: - Decide onindicatorsandweightthem - Evaluate eachcountryon the weightedindicators SOURCES AND SHORTCOMINGS OF COMPARATIVE COUNTRY INFORMATION 1. INACCURACY 2. NONCOMPARABILITY 6 REASONS MAY BE INACCURATE: 1. Governmental resourcesmay limitaccurate data collection - Countries resources may limit budgets for data collection, the latest computer hardware, software, and training programs. 2. Governmentsmustdependon estimatesand revisions - There istrade-off betweenaccuracyandtimelinessof data. 3. Governments may omit or purposely publish misleading information - Gov researchers sometimes publish false or purposely deceptive information designedto mislead their superiors, the country’s rank and file or companies and institutions abroad.
  • 31.
    4. Respondentsmay givefalse informationto data collectors. - Mistrust of data usage may lead respondents to answer questions falsely, particularly if questions probe financial details or anything else that respondents either consider private or to be usedbygov authoritiesagainstthem. 5. Official data may include only legal and reported market activities - Nationally reported income figures seldom include illegal income from such activities as the drug trade or cash transactionstoavoidtax payments. 6. Questionable methodologymaybe used - Inaccuracies may occur because of methods use to collect and analyze information. Noncomparability: - Countries do not necessarily publish reports for the same lengthof time periodsorat the same time as eachother. - Countriesalsodifferinaccountingrulesandhowtheydefine items,suchas familyincome,literacyandFDI. EXTERNAL SOURCES OF INFORMATION 1. Service companies – banks, transportation agencies, accountingfirms 2. Government agencies – the US department of commerce, CIA 3. International organizations – the UN, the WTO, IMF, OECD, EU 4. Trade associations ALTERNATIVES FOR ALLOCATING RESOURCES AMONG LOCATIONS 1. ALTERNATIVE GRADUALCOMMITMENTS 2. GEOGRAPHICDIVERSIFICATIONVERSUS CONCENTRATION 3. REINVESTMENT AND HARVESTING 1.ALTERNATIVE GRADUAL COMMITMENTS Companiesmay reduce risks from the liabilityofforeignnessby: 1. Going first to countries with characteristics similar to those of theirhome countries 2. Having experienced intermediaries handle operations for them 3. Operating in formats requiring commitment of fewer resourcesabroad 4. Moving initially to one or a few, rather than many, foreign countries 2.GEOGRAPHICDIVERSIFICATION VS CONCENTRATION Strategies for ultimately reaching a high level of commitment in many countries are: - Diversification– go to manyfast and thenbuildupslowlyin each - Concentration – go to one or a fewand buildup fast before goingto others. - A hybrid of the two.
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    Reason company shouldconsiderwhen decidingwhich strategy to use: 1. Needfor rapid growth in country - If country markets are all growing rapidly, companies may need to invest heavily in each to build and maintain a threshold market share, thus straining resources if simultaneouslyenteringalarge noof countries. 2. Competitive leadtime - Where technology obsolesces rapidly, companies need to enter many markets quickly before competitors usurp their advantages, thus being in situations that favor a diversificationstrategy. 3. Need for product, communication and distribution adaptation - When companies must tailor their products and operating methods for each country they enter, they incur additional costs. 4. Program control requirement - The more company wants to control its operations in a foreign country, such as because of fear that a partner will become a competitor, the more favorable a concentration strategyis. REINVESTMENT AND HARVESTING 1. REINVESTMENT DECISIONS - Companies treat decisions to replace depreciated assets or to add to the existingstockof capital fromretainedearnings in a foreign country somewhat differently from original investmentdecisions. - This is because companies may have to make new commitmentstomaintaincompetitivenessabroad. 2. HARVESTING - Companies commonly reduce commitments in some countriesbecause those countrieshave poorerperformance prospectsthandoothers –a processknownasharvesting(or divesting) - Companiesmustdecide howtogetoutof operationsif: - Theyno longerfitthe overall strategy - There are betteralternativeopportunities - Companies may divest by selling or closing facilities. They usually prefer selling because they receive some compensation. - A company that considers divesting because of a country’s political oreconomicsituationmayfindfewpotential buyers exceptatverylowprices. NON-COMPARATIVE DECISION MAKING - Most companiesexamineproposalsoneatatime andaccept themif theymeetminthresholdcriteria. - Managers make go-no-go decisions by examining one opportunity at a time and pursuing it if it meets some thresholdcriteria. - To begin with, companies sometimes need to respond quicklytoprospectstheyhadnot anticipated.
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    CHAPTER 7 ENTRYMODESTRATEGY 1. Most commontrade-relatedentrymode strategy?International marketentrystrategies.(through exporting) 2. Exporting = where an MNE maintains its presence at home countryand sellsitsproductinternationally. 3. Firm pursuesexportingas entry mode strategy because: – involved fewer as risks as compared to other entry mode strategy. - No substantial investment to establish production facilities abroad. - Doesnothave todeal withdifferentbusinessenvironmentin differentcountriesunlikegreenfield(FDI) - Can gain specific knowledge about a particular foreign market that lead to further business expansion in that country. 4. Disadvantages of usingexporting: - Tariffbarrier orimporttax imposedbylocal government.Tax may increase the price of the productsinforeignmarketand reduce productcompetitiveness. - Transportation cost may also reduce product competitivenessasitincreasesthe price of the products. - Firm may be unable to sell the productdirectlyto consumer as it needs to hire third party or intermediaries who act as distributortosell the productinforeigncountrymarket.The 3rd party may not be able to perform the task efficiently as the firmdoesat a home country. WHY EXPORTING MAY NOT BE FEASIBLE 1. It may not be feasible option for firm to pursue if it compromises firm’s competitiveness in global marketplace. In this case, exporting is inappropriate strategy when it increasesthe costof doingbusiness. 2. Tariff barriers, transportation cost and 3rd party distributors may all increase the cost and hence reduce the competitivenessof the product. - In this case, FDI may be more appropriate strategy pursue when firm can identify low-cost location to manufacture its product. UNDERSTANDING EXPORT PROCESS A. DIRECT EXPORT - Can be done directly by the firm or through the 3rd party or known as export intermediaries or export management company(EMC) - The person in charged of the exporting process must familiarize with the export terms which is also known as terms of sale as defined by international chamber of commerce (ICC) - The termsspecifywhichparty eitherbuyerorsellerpaysfor which shipmentand loadingcost: 1. FREE ALONGSIDESHIP (FAS) - Alsoknownas Free House delivery=atermof price whereby the sellercoversall costsand risks up to the side of the ship ina designatedshipmentexportport. - The BUYER bearsall costs andrisksthereafter. 2. FREE ON BOARD (FOB) - The SELLER covers all costs and risks up to the point where the goodsare deliveredonboardof the ship.
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    - The BUYERbears all costs and risks once goods delivered which means the buyer is responsible for the insurance and freight expenses in transporting the goods from shipment port to the destinationport. 3. COST, INSURANCEAND FREIGHT (CIF) - The SELLER covers costs of the goods, insurance and all transportation and miscellaneous charges to the name of foreignportinthe country of final destination. 4. EX WORKS/ EX FACTORY - The BUYER bears all costs of the goods, transportation and miscellaneous charges to the name of foreign port in the countryof final destination. - The BUYER purchasesandbearsthe insurance. - Ex factory is considered the most cheapest arrangement as the buyer can make their own arrangement and choose the cheapestcostof transportationandinsurance. Frequentlyuseddocuments: 1. A letterof credit (L/C) - A documentissuedbymostlyfinancial institution. - Serves as a contract between importer and a bank that transfers liability for paying the exporter from the importer to the importer’sbank. 2. A bill of lading (B/L) - The documentissuedbyshippingcompanyoritsagent. - Serves as evidence of a contract for shipping the merchandise andasa claimof ownershipof the goods. Otherimportantdocumentsused:bankdraft(servesasaguaranteed fund), commercial invoice, insurance certificate and certificates of origin. B. EXPORT INTERMEDIARIES - Are a company,alsoknownasexportmanagementcompany (EMC) which specializes in facilitating imports and export activities. - Their service includes: - handlingforeignshipments, - preparingexportdocuments - dealingwithcustomoffices - insurance companies - commodityinspectionagencies - are commonly experts in dealing with legal, financial and logisticsdetailsof exportingandimportingactivities. INTERNATIONAL SUBCONTRACTING 1. The process in which a firm seek other firm or company (typically foreign firm) to provide them with raw materials, semi-finished products, sophisticated components or technologyforproducingfinal goods. 2. The foreign firm does not own the property rights of the product produced as they will receive some fees for producingthe. 3. Rationale because: - Otherforeignfirmsare more efficient - Can produce the productcheaper - Seeklowlaborcostin foreigncountry - Seek for lower cost of production that can enhance its competitivenessinthe global marketplace. 4. Threat – the foreignfirmmay gainknowledge andexpertise toproduce the productandeventuallybecomeacompetitor.
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    COUNTERTRADE 1. A sellerand a buyer from different countries exchange merchandise with or without little cash equivalents. 2. In international trade, countertrade is viewed as a form of flexible financingorpayment. 3. This trade arrangement can be categorized into four differentactivitieswhichinclude: A. BARTER - Barter trade (i.e. exchange of goods) may be the oldest form of trading. - In modern barter trade, it involves direct and simultaneous exchange of goods between two parties without any cash transaction. - the two parties involved can be between individuals, and firms or between firms and governments in two different countries. - For example, French and Cuba barter trade involve the exchange of wheat for sugar. B. COUNTERPURCHASE - Is a reciprocal buying agreement between two parties that occurs at a different time. - In this arrangement, one firm sells its product to another firm at one point in time and in return, the other firm will buy their products. - It is more flexible than barter trade in which the volume of trade does not have to be equal. - The differences invalue can be settled either though escrow account or by using cash. - it serves as a protection contract between them. C. OFFSET - An offset is an agreement between two parties in which one party agrees to purchase goods and services with a specified percentage of its proceeds from an original sale. - In offset agreement, products are normally related. - Offset arrangement is commonly popular in sales of expensive military equipment or high-cost civilian infrastructure hardware. D. BUYBACK - In this agreement, it involves two contracts which are sales agreement and purchase agreement. - buyback is a compensation agreement that occurs when one firm provides another firm with inputs for manufacturing products and agrees to take certain percentage of the output produced by the producing firm as partial payment.
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    TRANSFER RELATED ENTRYMODE STRATEGY - occurs when one firm transfer ownership or property rights of its technology or assets in exchange for royalty fees. - 4 different types: A. INTERNATIONAL FRANCHISING 1. An arrangement between 2 parties known as franchisorandfranchisee. 2. Franchisor grants the intangible property rights(trademark, brand name) to the franchisee in exchange of royaltyfees. 3. Franchisee must abide by the terms and rules of doingbusinessasspecifiedbythe franchisor. 4. ADVANTAGES: 1. Low political risksas the businessismanaged by franchisee whichis familiarwithlocal marketcondition. 2. Low cost of doing business abroad as the cost of setting up the businessinforeignmarketwill be borne byfranchisee. 3. Franchising is an easy way for franchisor to create revenue by leveragingonassets. DISADVANTAGES: 1. Franchisee jeopardize and damage the image of the firm if theyare unable or do not followthe qualitystandardset by the franchisor 2. Franchisingagreementlimitsthe franchisor’sprofitrevenue. B. INTERNATIONAL LICENSING 1. International licensing is an agreement between a foreign firm known as the licensor and local firm known as the license. 2. In this agreement, the licensor grants specified intangible property rights to the license for a specified period of time and inreturnthe licensorwillreceive royaltypayment. ADVANTAGES: 1. A firmisable to minimize the costsandrisksassociatedwith doinginvestmentinforeignmarketsforexample,political risks. 2. No substantial investmentisrequiredtopenetrateforeign marketsas there isno needtoestablishproductionfacilitiesabroad. 3. Licensing is an attractive strategy firms lacking capital to venture intoforeignmarkets. DISADVANTAGES: 1. Firmsdo nothave control overthe manufacturingand marketingof the productsas the businessoperationsare managed by the license. 2. Potential lossof intangiblepropertyandknow-how. 3. By granting specific property rights, the license may gain knowledgeof the productsandeventuallymaybecome acompetitor by setting up its own business operations. Furthermore, the local license may benefit from the improvement of the product and uses themto penetrate the licensorshome market.
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    C. INTERNATIONAL LEASING 1.Another entry mode strategy where firm known as lessor leases its equipment or machines to foreign firm knows a lessee foraspecifiedperiodof time 2. The machines or equipment can be new or used machines that are normally leased to manufacturing firms in developingcountries. LESSOR BENEFITS: 1. The generationof revenue through leasingfees. 2. Fully utilization of the available equipment or machines as these equipmentandmachinesare commonlynotfullyused by the firmbut still ingoodconditiontobe leasedout. 3. Business expansion to foreign market and accumulate experience inforeignland. LESSEE BENEFITS: 1. Reduce financial burdentoaccessforeigntechnologies 2. Lesshassle andlittle orno maintenance cost. 3. Easier way to access to foreign technologies and facilities that enable lessee to increase their knowledge and experience withforeigntechnologiesandfacilities. D.BUILD-OPERATE-TRANSFER (BOT) 1. Alsoknownas“turnkeyprojects” 2. Foreigninvestorsare paidbya clienttodesignandconstruct newfacilitiesandtrainlocal personnel. 3. Upon completion, or over a period of time, the project will be hand overto the client. ADVANTAGES: 1. Firms can capitalize on BOT strategy to rapidly generate revenue andalsoasa meanto penetrate foreignmarkets. DRAWBACKS: 1. The client may later become competitor as the clients are exposedand trainedto use firms’advance and state-of-the- art technologies. 2. BOT does not allow long-term presence in international market since firm have to eventually hand over the project to local client.
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    CHAPTER 9 SMALLBUSINESS AND INTERNATIONAL ENTREPRENEURSHIP SMALL BUSINESS – CONCEPTS AND DEFINITION 1. Small business is categorized under small and medium enterprise(SME). It plays an important role in Malaysian economics. 2. Various agencies in Malaysia, adopt different definitionsof SMEs dependingontheirbusinessinterests. 3. Small and medium industries development corporation (SMIDEC) which defines SMEs according to 2 main factors – annual salesturn overand numberof full time workers. 4. Medium sized business = a business establishment with an annual sales turnover of between RM10 millionand RM25 millionandwhichemploysmore than150 full-time workers. 5. Small sized business = a business establishment with an annual sales turnover of not more than RM10 million and whichemploysnotmore than50 full time workers. CHARACTERISTICS OF A SMALL BUSINESS 1. OWNERSHIP - Privately owned by individual or partners, typically registered as sole proprietorship, partnership or private limited(SdnBhd) company. 2. MANAGEMENT - The businessismanagedandoperatedbythe owners - The entrepreneurs of founders of the business lead the company,andmay act as bothmanagerand worker. - The development of the business is determined by the owners and owners is the one that do the decision making. 3. RESOURCES - A small businessoftenhas lackresources. - Thisistrue for newstartsupdue toa lack of track record on the business to convince potential investors and bankersto invest. - Therefore, the success of the business is highly dependent on the ability of the owner to generate resources. 4. ORGANIZATIONSTRUCTURE - For a small business, the structure is often flat and informal. - The ownerhas to do almosteveryworkandthe workers are normally expected to be able to function as general workerssince there isnoclearseparationof tasks. 5. FLEXIBILITY OF CHANGE - The business has more flexibilityto adapt to changes in the environmentdue toitssize andinformal structure - It is very importantto be able to adapt to changessince any changes in technology or government policy might have a great impacton the business. - This is because with immediate changes, it requires additional capital or resources. This might become constraint to the business to compete and sustain itself inthemmarket.
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    ENTREPRENURSHIP, ENTREPRENEURS ANDENTREPRENURIAL FIRM 1. The firm size and age are not the important factors that define ent but ent is more definedas the identification and exploitationof previouslyunexploredopportunities. 2. Int ent is a combination of innovative, proactive and risk seeking behavior that crosses national borders and is intendedtocreate wealthinorganization. 3. Ent rise easily,theycanfall easily. INTERNATIONALIZATION AND THE SMALL BUSINESS 1. Internationalization is the increasing tendency of firms to operate acrossnational boundaries. 2. Many factors that contribute to the growth of internationalization: A. Rise of properinfrastructure B. Institutionalizationof international economicrelations C. Reductionof barrierstotrade flows D. Internationalizationfinancialsystem E. Cheapercostof transportand communication F. Expansionof transnational business INTERNATIONALIZATION STAGES OF BUSINESS 1. The UPPSALAMODEL of internationalization=introducedby JohansonandVahlne (1997). 2. The study was based on the internationalization processof large Swedish manufacturing firms which took place in the 1970s. 3. Main finding = firms have tendency to enter a new market incrementally,depending on their knowledge of the market environment. 3 MAJOR STAGES: 1. INTERNATIONALIZATION PROCESS OF TRADING GOODS - It is in the form of international transactions or the business/commercial operations. - Firms will export goods, supplies and services and combined operations with other firms to re-export or establishtrade officesinforeigntrade 2. THE INTERNATIONALIZATION OF PRODUCTION - This can be done throughvariousforms of alliancesand international cooperation that aimed at the technology transfer for the multi-production of goods abroad (by usingmode of entrysuchaslicensing,franchising,selling knowhow etc) - Firmsmay locate part or the whole of productionplant. 3. INTERNATIONALIZATION OF THE FIRM - The mainway of achievinginternationalizationisforeign directinvestment(FDI),inwhichthe firminvestsdirectly inphysical investment. - At this point, firms build up plants, hired local human resources, use local and imported resources to do production. THE STAGE MODEL OF INTERNATIONALIZATION FOR SMALL BUSINESS
  • 40.
    STAGE 1: PASSIVEEXPORTING -The small businesses fill orders but do not seek export business. - At this stage, many small owners do not recognize that theyhave an international market. STAGE 2: EXPORT MANAGEMENT - It is where the firm or CEO will find export sales in this stage. - Due to limited resources, many small business rely or indirect channel of exporting and considered as the majortransitionforsmall businessestoexpandbroad. STAGE 3: EXPORT DEPARTMENT - The small business will use significant resources to find waysto increase salesfromexporting. - Export is not considered as a prohibitive risk by small businessesandit mustfindproperinternational partner to distribute the productsorservices. STAGE 4: SALES BRANCHES - When there is high demand from the foreign countries forthe productsor services,itisacceptableforthe small businesstosetuplocal officesatthose countries. - In this case, small businesses must choose whether to hire local managersandworkerstomanage the business or to sendexpatriatestothe foreigncountries. STAGE 5: PRODUCTIONABROAD - PA allows companies to gain local advantages, local adaptationandproductionefficiencies. - In orderto expandabroad,small businessesmaychoose mode of entry such as licensing,joint ventures or direct investment. - Is alwaystoughbecause highcostinvolved. STAGE 6: THE TRANSNATIONAL - The last stage, the size of companies is irrelevant in influencingwhethertheycangoabroad or not. - The small business may develop a global integrated networkthatmay be categorizedastransnational firms. GROWING AND INTERNATIONALIZING THE ENTREPRENEURIAL FIRMS 1. GROWTH - Entrepreneursarisebecauseof the excitementof setting up businessbyindividuals. - In RBV theory, if firms have sufficient resources and capabilities, they may venture into setting up their business. - Inent,agoodvision,driveandmotivationandleadership are the core capabilitiesthat any ent must have inside them. 2. INNOVATION - Is important for entrepreneurs and it allows entrepreneurtobe more sustainable. - Is the competitive advantage of any entrepreneur. With the spirit of innovativeness, the entrepreneur tend to take more risksthan the largerfirms - They will introduce new products and services, new radical waysof doingbusiness
  • 41.
    3. FINANCING - Peoplehave always been afraid of venturing into something that they are not used to especially the processof raisingcapital. - But the truth is that, there are many investors,bankers, foreignentrants,banksandgovernmentagencieswilling to helpentto start theirbusiness. 4. INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 5. TRANSACTION COSTS AND ENTREPRENEURIAL OPPORTUNITIES INTERNATIONAL STRATEGIES FOR ENTERING FOREIGN MARKETS 1. DIRECT EXPORT - Involve the sale of productsmadebySMEsintheirhome countryto customersinothercountries. - This mode is popularamongSME since it issimpler,less risks and entrepreneurs are able to reach foreign customersdirectly. - Disadvantages = SMEs may not have enough resources to turn overseasopportunitiesintoprofits. 2. LICENSING/FRANCHISING - Usedespeciallyinmanufacturingindustries - Franchising = typically used n service industries such as fast food industry since franchising involves a certain operatingsystem - Advantage = entrepreneur who uses licensing and franchising can expand abroad with little capital since foreign firms that are interested in becoming a licensee/franchiseehave toputtheircapital upfront. - Disadvantage = licensor/franchisor may suffer loss of control over how theirtechnologyandbrand namesare used. 3. FDI - Entrepreneurs may pursue FDI by forming strategic alliances with foreign partners, joint venture, foreign acquisitionsandgreenfieldwhollyownedsubsidiaries. - Advantages = entrepreneurs may be able to control the usage of proprietaryandbrandname. - Disadvantages = any entrepreneur who would like to engage withFDImusthave abundantcapital asthe start- up cost isveryhigh. INTERNATIONALIZATION STRATEGES FOR STAYING AS A DOMESTIC BUSINESS 1. DIRECT EXPORT - Many entrepreneurs do not have enough resources to handle directexport. - They may then resort to indirect exports which become as exportintermediariesthatdo “middleman”functions that linkingsellersandoverseasbuyers. - Ex: in Japan and Korea, they are entrepreneurs who handle 50% of total exports. 2. BECOME SUPPLIERS TO FOREIGNFIRMS - Foreign firms who expand business overseas aimed at cuttingtheircostsoptimally. - Therefore, they are looking for a local suppliers which may loweredboththe costandrisk. - Ex: subwayhad secureda contract withlocal supplierin Irelandtosupplychilledpart-bakedbread.
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    3. LICENSING/FRANCHISING - Entrepreneursmay consider becoming a licensee or franchisee of anyforeignbrandsandfirms. - This strategyenable entrepreneurstodo businessusing the proprietaryrightsof the owner 4. BECOME ALLIANCE PARTNERS OF FDI - True enough, most of the entrepreneurs unable to compete withestablishedforeigndirectinvestors. - The chancesto compete isalwaysthere butverylimited. - The best approach would be to join forces with foreign investors by being their partner in disturbing foreign brandsand products. 5. HARVEST/EXIT STRATEGY - Entrepreneursmaysellanequitystake orthe entirefirm to foreignfirm - Ex: Seattle coffee, originally owned by Britain’s couple soldto Starbucksto avoidfromlosses. WHEN TO GO GLOBAL (9 QUESTIONS) 1. Do we have global productsor service? 2. Do we have managerial, organizational and financial resourcestointernationalize? 3. Evenif we dohave the resources,are willingtocommitthem and face the risksof internationalization? 4. Is there a country in whichfeel comfortable doingbusiness? 5. Is there a profitable marketforourproductor service? 6. Whichcountry shouldwe enter? 7. Do we have a unique product or service that is not easily copied by large multinational companies or local entrepreneur? 8. Do locationadvantagesexist upstreaminthe value chain? 9. Can we affordto be a multinational? There are 2 method that small business can choose in expanding global: 1. Some firms may follow the stages of international involvement, where each next stage will lead to greater involvement. 2. Small firmsmaybeginasglobal companiesimmediatelyafter the inception.Goingabroadfromdayone – global startup. OVERCOMING BARRIERS TO GO INTERNATIONAL FOR SMALL BUSINESS Barriers: small in size means… 1. Limitedfinancialandhumanresources 2. Lack of economiesof scale toproduce goods and servicesas largerfirms 3. Smallerbizoftenplaguedwithinexperiencedmanagerswith limitedinternational exposure andsometimeswithnegative attitudestowardsforeigncountries. 4. Theyare risk averse andmay viewgoingabroad isnot really profitable forthem 5. Past success with home market may also prevent small businessestoexpandtheirbusinessesabroad.
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    WAYSTO OVERCOME: 1. THEFIRST IS WAYTO DEVELOP A SMALL BUSINESSGLOBAL CULTURE. - Global culture occurs when an organization has managerial and subordinatesthat view by going global has strategicopportunities. - Thinking global and changing into global mindset is a mustany small businessestoexpand. 2. KEY DECISION MAKERS MUST CHANGE THEIR ATTITUDE IF THEY WANTTO GOABROAD. - For any companies that go abroad, each stage of going abroad requires increasing commitment from the top executivesof the businesses. - Because of different perception and negative attitudes towards internationalization, most small businesses expand their products and services to nearby countries that have similarvaluesandculture. 3. SMALLER SIZE WILL LEAD TO RAPID DECISION MAKING. ADVANTAGEFOR A SMALL BUSINESS IS SPEED. - Since they can decide faster, most of time small businesses can be the first in the market and capture potential salesbefore the largercorporationmayreact. - The ability of speed is important for small businesses as theycan adoptthe newchangesinthe marketplace and the changesin the global demand. SMALL BUSINESS GLOBAL START UP (BORN-GLOBAL FIRMS) 1. Global start-ups occur small businesses go abroad since the day of inception. - The definitionof born-global firmisanyfirmthat purses a global visionfrominceptionandglobalize rapidly. 2. Born global firms are often very flexible and fast moving, especially in the high-tech industry. Tend to be knowledge- intensive intheirarea. 3. Born-global firms tend to market value added offering that comes from the developments of science, technology or design. 4. The offeringsare innovative,progressive,differentiatedand unique. 5. Factors that trigger early internationalizationoffirm(born- global firms) such as: - Size of the firm’shome market - New market conditions in world market (e.g the emergence of global niche markets) - Technological developments in communications and products - Emergence of global networksandalliances - Organizational capabilities 6. 6 fundamentals sources of competitive advantage that born-global firmsneedto attendto: - Continuously focusing on entrepreneurial orientation and innovation. - Abilitytoimproveofferingandretaintechnological edge. - Dynamic engagement of networks of customers, suppliers,partners andexternal stakeholders. - Managing evolution to a more complex organization withoutlosingentrepreneurial competencies.
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    - Improvingthe abilitytobalanceopportunityandrisk. - Possessinganagile andexperimentingorganization. DISTINCTIVE CHARACTERISTICS OF BORN-GLOBAL FIRMS 1. HIGH ACTIVITY IN INTERNATIONAL MARKETS FROM OR NEAR THE FOUNDING - Born-global firms begin exporting their products or serviceswithinacouple of yearsaftertheirfoundingand may exporta quarteror more of theirtotal production. - Most of them advances through subsequent stages of internationalization,collaborationwithforeignpartners, or undertakingof directforeigninvestment. 2. LIMITED FINANCIALAND TANGIBLE RESOURCES - Born-global firmstendtobe relativelysmallandhave far fewerfinancial,human,tangible resourcesascompared to large multinational enterprises that have been consideredasdominantinglobal trade andinvestment. - That is why born-global firms have limited financial and tangible resources. 3. PRESENT ACROSS MOST INDUSTRIES - Many born-global firmsare technologyfirms. - Born-global phenomenon is widely spread beyond the technologysector. - Born-global firms are found in industries such as metal fabrication, furniture, processed food and consumer products. 4. EMPHASIS ON DIFFERENTIATION STRATEGY - Born-global firmstendtoadoptdifferentiationstrategies by developing differentiated designs and highly distinctive products that target niche markets, which may be too small forthe tastesof largerfirms. 5. EMPHASIS ON SUPERIOR PRODUCT QUALITY - Born-global firms are often at the leading technologies edge of theirindustryorproduct category. - They are founded to exploit business opportunities based on the development of new product or services that are better designed and of higher quality than the competitors’offerings. 6. MANAGERSHAVESTRONG INTERNATIONAL OUTLOOKAND INTERNATIONAL ENTREPRENEURIAL ORIENTATION 7. LEVERAGING ADVANCED INFORMATION AND COMMUNICATIONSTECHNOLOGY 8. USING EXTERNAL, INDEPENDENT INTERMEDIARIES FOR DISTRIBUTION IN FOREIGN MARKETS.
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    CHAPTER 8 FOREIGNDIRECT INVESTMENT RELATED ENTRY MODESTRATEGY 1. FDI is a direct investment made by a company or entity based in one country, into a company or entity based in anothercountry. 2. Or definedasacompanyfromone countrymakingaphysical investmentintobuildingafactoryinanothercountry. 3. Indirect investment = portfolio investment, investing in equitieslistedona nation’sstockexchange. 4. FDI has come to playa major role in the internationalization of firm. 5. Factors that induce firms that adopt FDI are: - Changesintechnology - Growing liberalization of the national regulatory frameworkgoverninginvestmentinenterprises - Changesinglobal capital markets. 6. FDI made in form of direct investment, fixtures, machinery, equipment and buildings and it can also be done through mergersandacquisitionsaswell. HOW HAS FDI CHANGED IN THE PAST DECADE? 1. LICENSING AND TECHNOLOGYTRANSFER - Have beenimportantinpromotingcooperationbetween the academicand businesscommunities. - Since the policy allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces. - Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particulartechnologyisfullydeveloped. - Technologylicensing= agreementwherebyanownerof a technological intellectualproperty(the licensor)allows anotherparty(the licensee)touse,modify,and/orresell that property in exchange for a compensation (consideration). 2. RECIPROCAL DISTRIBUTION AGREEMENTS - Usuallyoccursbetween2companies,withinthe same of affiliatedindustries. - Both agreed to act as a national distributor for each other’sproducts. - Ex: a US based manufacturer of tables signs a mutual distribution agreement with Spanish based manufacturerof chairs. - Both companies gain direct access to each other distribution network without having to pay distributor support payments and other related expenses found withinthe distributionchannel andneithercompanycan hurt the other’smarketforits products. 3. JOINT VENTUREAND OTHER HYBRID STRATEGIC ALLIANCES - Involves 2 firms who are within the same industry who are partneringforsome strategicadvantage. - Reasons for partnering= - i.the needtoaccessthe proprietarytechnology - ii.The desire togainaccess to intellectual - iii.To accessto channelsof distributioninkeyregionsof the world. - JV involves3ormore partiesare usuallycalledsyndicates - Most often formed for specific projects such as large construction/publicworksprojectsthatmightinvolve a
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    wide variety ofexpertise and resources for successful completion. BASIC REQUIREMENT FOR EMBARKING USING FDI 1. THE LEVEL OF COMPETITIVENESS - FDI may be considered as an attractive and feasible option depending on the industry sector and type of business. - Fromthe competitiveview,itisimportanttobe aware of competitors who are expanding into a foreign market and howtheyare doingit. - It also becomes crucial to monitor how globalization is affecting domestic clients on their products/services needs. 2. NEW MARKET ANALYSIS - Firm must have realisticassessmentinaspect such as: - Resource utilization, - Local industryandforeigninvestmentregulations, - Governmentincentives, - Profitretention, - Financing,distributionandotherfactorsbefore entering the market. 3. MARKET EXPECTATION - Foreign production or locationbegins to look more cost effectivewhenproductorservice reachesacritical mass of amountandcost. - Anydecisiononinvestingmustcarefullyconsiderfactors: - The feasibilitytooperate inalarge capacitythatwill lead the firmstoacquire economiesof scale inmanufacturing to meetdemandina large market. - Firms must have access to supply chain channel members - And logistic transportation in order to produce and distribute productstointernational market. 4. INTERNAL RESOURCES - EX: does the firm have support from all its stakeholder for the foreigninvestment? - Doesthe firmhave thecapabilitiesandstrongknowledge to go abroad? - These questions need to be taken seriously by the managementof the firmbefore decidingtoembarkin a foreignlandusingFDIto minimizerisks. MERGER AND ACQUISITION (M&A) 1. MERGER = a combination of 2 companies to form a new company 2. ACQUISITION = is the purchase of one company by another inwhichno newcompanyisformed. 3. Merged companies typically will operate on a cooperative basis, while an acquisition involves absorbing part or all of anothercompany. 3 BENEFITS OF ACQUIRING A COMPANY IN THE SAME INDUSTRY 1. ECONOMIES OF SCALE AND INCREASED EFFICIENCY - Acquiring a company in the same industry can result in reducedcostsdue toeconomiesof scale foracombined, larger entity, along with increased efficiency in productionandotheraspectsof businessoperations.Ex: wall-mart
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    2. EXPANDED MARKETRESEARCH - If a company acquired a second company in the same industry,the mergedentitymaycoveralargerpart of its market. - This may add up new market opportunities in different geographicregion. - Firms may expand its business to a new territory and gathermore demandfor itsproductsand services. 3. TAX AND LEGAL IMPLICATIONS - A profitable company can reduce its tax liability by acquiringalessprofitable companyinthe same industry. JOINT VENTURE JV = the cooperationof 2 or more businessesinwhicheachagreesto share revenues,expensesandassetsincludingprofit,lossandcontrol ina specificenterprise. 1. There are also other types of companies such as JV limited guarantee,andJV limitedbyguarantee withpartnersholding shares. 2. When 2 or more individuals come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a JV where the partiesare Co-ventures. 3. The venture can be for one specific project only and sometimes also is being referred to a consortium or a continuingbusinessrelationship. 4. The consortiumJV (alsoknownasa cooperative agreement) isformedwhere one partyseeks: - Technological expertise ortechnical service agreements - Franchise andbrand use agreements - Managementcontracts - Rental agreementsforone-timecontracts GLOBAL STRATEGIC ALLIANCES (GSA) 1. Usually established when a company wishes to enter into a relatedbusinessornewgeographicmarket –particularlyone where the governmentprohibitsimportsinorderto protect domesticindustry. 2. Typically, alliances are formed between 2 or more corporations, each based in their home country, for a specifiedperiodof time. 3. Their purpose is to share in ownership of a newly formed venture and maximize competitive advantages in their combinedterritories. 6 TYPES OF GLOBAL STRATEGIC ALLIANCES 1. JOINT EXPLORATION - A type of JV thatspecificallyinvolveswithcompaniesthat are extractingminerals,oil andgasexploration. - The act of exploring, penetrating, or ranging over for purposes of discovery, especially of geographical discovery; examination; as the exploration of unknown countriesare jointlytogetherbyfewcompanies - Ex; shell and Petronas signed a contract for joint explorationinsearchforoil andgasinoffshore Sarawak. 2. RESEARCH AND DEVELOPMENT CONSORTIUM - Are formed by manufacturing companies, for the purpose of conducting shared research on new technologiesforthe benefitof theconsortium’smember companies,oftenwiththe supportof government.
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    - R&D consortiais most frequently formed in the electronics, semiconductor and pharmaceutical industries. 3. CO-PRODUCTIONAND CO-SERVICEAGREEMENT - An international co-production is a production where 2 or more different production companies are working togethertoin a specificproject. - Ex: a co-production agreements enable Canadian and foreign producers to pool their creative, artistic, technical and financial resources to coproduce projects that enjoy the status of national production in the countriesinvolved. - Co-service agreement = agreement entered between a consultant or independent contractor and firms to provide management, consulting or other services for a fee. 4. CO-MARKETING ARRANGEMENTS - Co-brandingisalsoknownas brand partnership. - Brand partnership happens when 2 companies form an alliance to work together in marketingaspects, creating marketingstrategy. - Include sponsorships, ex: accountants Ernst and Young supportthe Monet exhibition. - The typical co-branding agreement involves 2 or more companies acting in cooperation to associate any of various logos, color schemes or brand identifiers to a specific product that is contractually designated for this purpose. 5. LONG TERM SUPPLY MANAGEMENT - The conceptof justintime,leanmanufacturingandagile manufacturing practices – help furthering the implementation strategy of the long term supply managementamongglobal firms. - Other factors that make long term supply change managementfeasibleisdue totechnological changes. - As firms strive to focus on core competencies and becoming more flexible, they may reduce their ownership of raw materials, resources and distribution channels. 6. CO-MANAGEMENTARRANGEMENT - The sharing responsibilities, rights and duties between the primary stakeholders, in particular, local companies and the nationstate - The definitionregardedco-managementassome kindof partnershipbetweenpublicandprivate sectors. - There are 6 facetsof co-managementarrangement: - A. CO-MANAGEMENTASPOWER SHARING - Resource managementfallsunderthe jurisdictionof the central or state government, but there may be arrangements for sharing power and responsibility with businessusers. - B. CO-MANAGEMENTAS INSTITUTIONBUILDING - Governmentmustcreate afavorablepolicyenvironment to assists the emergence of functional co-management arrangements by giving feedback, betweengovernment policyandlocal institutions. - C. CO-MANAGEMENTASTRUST AND SOCIAL CAPITAL - Directuserinvolvementinjointmanagementboardsdid not increase the likelihood of co-operation but the frequent presence of government bodies really increasedthe trustbetweenparties. - D. CO-MANAGEMENTAS PROCESS
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    - Co-management mustagreed on a process for sharing managementrightsandresponsibilities. - E. CO-MANAGEMENTAS PROBLEM SOLVING - Management decision-making means parties have to make choicesbetweendifferentalternatives. - But adaptive management requires collaborative processes to establish consensus among the parties before feedback-basedproblemsolvingcanproceed. - F. CO-MANAGEMENTASGOVERNANCE - Ofteninvolvesadiversityof playersincludingpublicand private sectors. - The polycentric approach recognizes that effective governance often requires multiple links across levels anddomains,andseeksoverlappingcentersof authority. - Such a decision-making structure contributes to the creation of an institutional dynamic appropriate for adaptive co-management and more broadly, for adaptive governance. UMBRELLA HOLDING COMPANY 1. A company that owns multiple chains of majority and minority-ownedoperatingsubsidiaries. 2. A type of business organization that allows a firm (called parent) and its directors to control or influence other firms (calledsubsidiaries). 3. Benefits = getting discounted insurance and benefits. Since most of this type of company isbig,it has to deal withmany insurance policies,payrollcompanies,andstaffingagencies. 4. Most umbrella corporations are among the powerful companies due to the sheer size of their overall workforce. These corporations can often command and receive group benefitsthat,asa result,are lessexpensive. 5. Drawback =theycanoftengrowsolarge thattheyeventually become inefficient.
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    CHAPTER 10 MULTINATIONALE-COMMERCE STRATEGIES AND STRUCTURES E-COMMERCE: 1. The selling or trading of services or goods through the internetisreferredtoase-commerce. 2. Thisalsoincludesoffline deliveryof aphysical good 2 kindsof dealings: 1. Business-to-customertransactions - Ex:purchasingtoysfromonlinecompany –amazon.com. theyare commonlyreferredtoasB2C. 2. Business-to-businesstransactions - It refers to trading stuff among business. more commonlycalledB2Btransaction. THE SIGNIFICANCE OF B2B TRANSACTIONS 1. It results from the electronic ties between business and the supplier, which has made the supply chain management possible. 2. The communications between the suppliers and business allows the suppliers to know which of their products are in demandandwishesof theirbusinesscustomers,whereasthe business customers can check their price, availability, shipmentandotherfactorsof theirdesiredgoods. e-commerce value chain STEPS FOR A SUCCESSFUL E-COMMERCE STRATEGIES 1. LEADERSHIP - The leaders of a company such as the CEO and senior executives should have strong belief in the profit of employingane-commerce approach. 2. Improvise current with newe-commerce models - Findwaystoreduce costsorenhance servicesofferedby the traditional business using e-commerce and can be worthwhile atthe same time byaddingvalue toclients. 3. Developingan e-commerce organization - Fullyintegratedoffline andonline operationsusingweb basedsystem. 4. Allocate resourcesto the e-commerce business - The financial, human, technological resources must be committedtothe task. - The e-commerce operations are rendered to 3rd parties or alliance partners when these resources are not presentwithinthe company. 5. Build a superior e-commerce infrastructure as a basis of a differentiationstrategy - The interactionwitheachclientshouldbe personalized. - Transactionsshouldbe rationalizedandsimplified. 6. Have an e-commerce strategy - The e-commerce strategyshouldbe builtonstrongfacts and concernedexperiences. - The recentexperiencesimplythatfor repeatpurchases, a strong brandname is vital. 7. Developappropriate e-commerce system - The alignmentof the e-commerce goalswiththe human resource policiesisalsovitalforappropriate e-commerce systems
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    8. Measure success -Companiesshouldmake use of metricssoasto measure the successof e-commerce . - Assessment of e-commerce incorporation across external and internal operation and level of top managementdedicationtoe-commerce. OPERATIONAL CHALLENGES FOR E-COMMERCE 1. Difficulttofindpartnershipsandallianceswithcustomersor 3rd parties. 2. It is hard to retain, developand attract employees in the e- commerce division due to shortage of people having e- commerce expertise. 3. Inadequacyintraininganddevelopmentine-commerce. 4. Employee retention thrives on provision of growth opportunitiesandjobfulfillmentine-commerce.Developing waysto ensure employee retentionisadifficulttask. 5. Many e-commerce functions are outsourced by survey companies,buttheyare disinclined(reluctant) tooutsource for functionsof companieswithdirectcustomercontact. STRATEGIES FOR PURE E-COMMERCE COMPANY TO OVERCOME THE CHALLENGES 1. Developmentof systemsof informationandmanagementin orderto respondto rapidgrowth. 2. Maintain rapid creativity, decision making, flexibility and innovation. 3. Concentrate on building external corporate relationships withcustomersande-commerce supportcompanies. 4. Attract and retaintalentwithe-commerce capable skills. 5. Form an effective teamformanagement. STRATEGIES FOR TRADITIONAL COMPANY WITH E- COMMERCE UNIT TO OVERCOME THE CHALLENGES 1. Develop a common goal and ensure commitment to operationof e-commerce throughoutthe organization. 2. Vary the structure of the organizationtoemphasizes aquick rearrangementof capabilitiesandassets. 3. Vary the culture of organization in order build a supportive atmosphere fore-commerce. 4. Attract and retaintalentwithe-commerce capable skills. 5. Change the HR programs in precision with different skill requirementsof e-commerce employees. OPPORTUNITIES VS THREATS FOR MULTINATIONAL E- COMMERCE MAJOR ATTRACTIONS OR PROS OF E-COMMERCE 1. It is comparatively less expensive to approach global customersthroughinternet. 2. The technology to approach anyone with an internet-linked computerisquite common. 3. The efficiencyof electroniccommunicationandprocessesis far greater. 4. The Web operates 24/7 regardless of location or any other factor. 5. Once a website is uploaded, a company’s products or servicescanbe accessedinstantly. 6. Businessesshould predict a 30-40 % return rate for online purchases,if the patternfollowscatalogsales.
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    UGLY SIDES ORCONS OF E-COMMERCE 1. Construction and maintenance multiple language, tax locations and currencies of Web sites can cost companies millionsof dollarannually. 2. Distribution and retailer that sell a company’s products are undermined by competition from the company’s own website thatsellsproductsdirectlytoendusers. 3. Local competitors can easily copy and replicate a multinational’s product, service, or business model if is displayedinthe web. 4. It is difficulttounderstandthe needsof global customersas there existbarriersof language and culture on the web.It is notsufficientforawebsitetobe multilingual butitmustalso followaformatthat isappropriate culturally. 5. Crossbordercomplexitiesincludepricingforexchangerates, governmentregulationsanddifferenttaxes. 6. Companies must make sure that their global customerswill trust andare satisfiedwithe-commerce andtheirwebsites. PICKING A MARKET Webentrepreneursshouldtargetcountries basedon 2 factors: 1. Inefficientmarkets - E-commerce attracts those markets which possess inefficiencies.In these markets,introducinge-commerce shoppingallowsbuyerstoobtaingoodsof betterquality andlowerpricesastheyare freefromcontrol ofthe state. 2. Attractive demographiccharacteristics - Markets with attractive demographic characteristics shouldbe targeted. - These target markets include locations with the followingcharacteristics: - A. internetpopulationof minimum 5% - B. highliteracyrate - C. country participation in one free trade agreement at least - D. governmenthavingaworkable legalsystem MULTINATIONAL E-COMMERCE STRATEGY IMPLEMENTATION 3 strategiesthatmanagerscantake note: 1. THE MULTINATIONAL E-COMMERCE ORGANIZATION MODEL - Mix the local and global functionsandare 3 tierede.g: - i. the global core is represented by corporate HQ. it harbors the strategy vision and leadership that run the electronic marketing of international products and services. - ii. Shared services are providedby HQ, like the network infrastructure. - Iii. At HQ and the shared functional areas, managers exercise globalresponsibilityfortheirprocesses. 2. TECHNICAL EFFICIENCY AND IMPLEMENTATION OPTIOSN FOR MULTINATIONAL E-COMMERCE - Components of a successful multinational online presence require electronic and technical efficiency as well as support throughout the value chain. Such efficienciesinclude: - 1. Software whichenforcespricinginseveral currencies. These software accept purchase in the customer’s own
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    currency, as wellsupport payment enforcing systems that exhibitpricesof the productsinmultiple currencies. - 2. Systemswhichare capableof automaticallycalculating and showingpurchase dataonglobal deliveryandduties and local taxeslike the VAT. - 3. Systems that check regulatory compliance with local and internationallaws. - 4. Provisionof supportinmultilingualservicecenters. - 5. Protectionagainstfraud. - 6. In additiontocreditcards,electronicpaymentmodels shouldalsobe used. 3. WEBSITES: TO LOCALIZE OR STANDARDIZE - 1. International sites should be linked to the corporate website - 2. If you have feedback or comment sections in your website,includenon-electroniclocal contactdetails. - 3. A listof languagesusedby company’swebsite should be provided. Such a list marks the commitment to globalizationandmakesglobal usage easy. - 4. If downloads are supported by your site, dedicate a page for global downloadsfordiverse languages. - 5. A site map should be provided for the website of parent company which include links to all other local content. - 6. Privacypolicyof the firmshouldbe providedinall local languages. - 7. Guard yourself against local piracy by providing your policies in local languages as many pirates of web material have claimedthattheywereunaware of thefact that it is illegal tocopybecause theydidnot understand English. - 8. Managementof contentshouldbelocalized.Language localization should be used in the parent company website whichhasthe mostaccess. - 9. Websites should be continuously monitored and updated. This is quite a challenge, as updating is to be done inall the languages.