part 8: Global entrepreneurship class

Developing Global Mindset for Entrepreneurs

Class #8
Saturday May 29th , 2010

Professor of international finance and global
entrepreneurship with Forum-Nexus Study Abroad. Guest
lecturer with the IQS Business School of the Ramon Llull
University in Barcelona, and the Catholic University of Milan.
Previously, Brian taught finance, economics and global trade
courses at Thunderbird’s Global MBA program in Miami, and
worked as a research analyst at the Columbia University
Business School in New York City.
briandbutler@gmail.com
A global citizen, Brian was born in Canada, raised in
LinkedIn/briandbutler Switzerland (where he attended international British school),
educated through university in the U.S., started his career
with a Japanese company, moved to New York to work as an
Skype: briandbutler
analyst, married a Brazilian, and has traveled extensively in
Latin America, Asia, Europe and North America. Brian
currently lives in Recife, Brazil where he is teaching classes
on “Global Entrepreneurship” at the university FBV.

1. Culture + Entrepreneurs
2. Homework review – personal COI
3. Exam return
4. Entrepreneurship ideas
5. Market entry strategy

 Question:
 Are there any cultural aspects that lead to
entrepreneurship?
 Are certain cultures more “entrepreneurial”?
 Can “style switching” be encouraged for
entrepreneurship?

 Class discussion…

1. Development issue:
 Which cultural traits probably lead to more
entrepreneurship, hence more economic
development?
 Which factors are most important for
entrepreneurship + level of entrepreneurship in
different places?

2. Personal issue
 What style switching should you do to promote
entrepreneurship?

 What COI
factors are
concentrated in
entrepreneurs?

 Any guesses??

"Why not me?" attitude:
 in cultures with “Equality” culture:
▪ people think that everyone is equal, and that anyone can
achieve great success.
▪ The legend of kids creating multinational corporation
from their garages…fuels this optimism that anyone can
achieve greatness.

1. Environment:
 Control
▪ World can be changed to fit “me”
▪ Not “harmony” or “constraint”
2. Individualism
 Particularistic
▪ “rules don’t apply to me” (not constrained)

4. Competitiveness
 Are you comfortable with competition?
 Desire for self-recognition?
 Wiling to leave the group / loyal to the group (thinking)?
5. Structure –
 Flexibility, Not “order” focused
 Better if likes flexibility, innovation, adaptation
 Comfortable with risks
 Dynamic goals (changing)
 Problem solving needs flexibility
 Tolerate unpredictable, dissent (Israel)

6. Thinking:
 Inductive vs. Deductive
 Slight advantage to deductive thought – not
constrained by “fact”, but instead gravitate to
grand theories, and “visions” (visionary)
 Inductive is better for big-company (systematic
process) innovations
 Deductive is better for entrepreneurs and big
changes

7. Time
 Future orientation
 Multi-focused (to wear “all hats” during startup
phase)

 Compare yourself with this hypothetical
German person:

 Deductive, linear, doing, low-context, direct, fluid
time, single focus, competitive, equality

 See next slide

Gap Analysis
•Deductive,

•Linear

•doing,

•low-context,

•direct,

•fluid time,

•single focus,

•competitive,

•equality

 Gap analysis:

 Questions
 Which areas do you have the greatest gaps?
(areas of potential conflict)?
 What could you do (style switching) to lesson the
potential problems?

 Class discuss…

 Keep for 1 week
 Need to return next week to me

 Components of Final Grade
 Exam a- 20%
 Exam b- 30%
 Team project 25%
 Assignments 15%
 Class participation 10%

 This exam was only 20% of your final grade

 So, if you didn’t do well…
 Or, if you did do well…

▪there is still time!

 4 more classes
 Today Attendance +
Homework = 25% of
 June 5th your grade!!
 June 12th
 June 19th –Exam 30% of your grade!!

 One week later – team project due
 June 26th - 25% of your grade!!

 Homework / assignments:
 I f you missed any homework… you may still
submit them!
 How? Review slides from previous lectures. Look
for homework assignments. If you didn’t do any…
DO THEM NOW!!!!
 Group Project
 Get together and start working today!
 Don’t wait till the last second!!

Who are the teams?
- one group of 5?
- or, two smaller groups?

 Discuss…

 +1 point for participation grade for students
with original ideas (not previously discussed
in class)

 Include 3-questions analysis of idea:
 What problem? What trend? What transferrable?
 (so, start with idea, then use 3 questions to evaluate)

Mine: water cup – airports – transfer from Brazil. Problem is price, size. Trend is economic crisis

Market entry strategies
for Entrepreneurs

 Deciding to go global is not enough…

 Next, you need to decide HOW to go global:

 Export, license, franchise, create a subsidiary,
foreign direct investment, acquire a company
abroad, etc…

FDI: Wholly
Level of CONTROL over foreign activities

HIGH owned
subsidiary

Franchising Joint Venture
with local
partner
Licensing

Export
through agent
or distributor
Indirect
LOW
Export
LOW HIGH
Commitment: Amount of Resources
committed to foreign market
Bartlett & Ghoshal

 Exports
 (a) direct, (b) through a distributor, (c) through a trading
company.
 Contracting
 Examples: (a) licensing technology, (b) franchising, (c)
management contracting, (d) turnkey venture, (e) joint
marketing agreement.
 Partially owned Direct investment
 Examples: (a) joint venture with local company, (b) joint venture
with foreign company, (c) joint venture with government.
 Fully owned Direct investment
 Examples: (a) assembly plant for local sales, (b) basic
manufacturing, (c) raw materials extraction, (d) offshore
assembly plant.

Professor Robert Grosse, Thunderbird

Decision Criteria*
Impact
Form of Foreign Added Capital Management Technology Political on
Involvement Income Commitment Commitment Commitment Risk Flexibility Rivals
Exports† ? Low Low Low Low High ?

Contracting‡ ? Low Possibly high Possibly high Low ? ?

Partially owned ? ? Possibly high High Medium Low ?
direct
investment§
Wholly owned ? High High Low High ? ?
direct
investmentII

* Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core
competency. The rankings will differ from company to company and also across countries.


 But, how do you decide which is right for you?

1. You could see what others in your INDUSTRY
are doing:

 How does the typical firm in your industry go
abroad?

HIGH
Pressures Toward Global Integration

Aircraft
Cameras Telecommunications
Consumer Electronics Aerospace
Computers
Pharmaceuticals
Global Strategy

Automobiles

Synthetic Fibers Steel

Clothing

Multi-domestic Strategy
Cement
LOW
Packaged Foods
LOW HIGH

Pressures Toward Localization
Source: Professor Robert Grosse, Thunderbird

 We have covered this before, but its worth
reviewing…

1. Global strategies:
 Pressures toward globalization include economies of
scale and benefits from centralized decision-making
2. Local strategies:
 Pressures toward localization (adaptation) include
cultural differences, government regulation, benefits
from decentralized decision-making
Bartlett & Ghoshal, slides from Professor
Robert Grosse, Thunderbird

 When should you choose to invest in FDI abroad?

FDI: Wholly
Level of CONTROL over foreign activities

HIGH owned
subsidiary

Franchising Joint Venture
with local
partner
Licensing

Export
through agent
or distributor
Indirect
LOW
Export
LOW HIGH
Commitment: Amount of Resources committed to foreign market

Supply Side – looking Demand Side – looking
for raw materials for customers
1. To lower 1. To explore new
production costs. markets, and to
2. To lower delivery serve a “portfolio” of
costs (costs of markets.
transportation,
insurance, tariffs, 2. Because an export
etc.) market was closed
by a prohibitive tariff
or quota.

Supply Side – looking Demand Side – looking
for raw materials for customers
3. To acquire a
necessary raw 3. To establish a local
material. presence with service
4. To do offshore and product
assembly. availability.
5. To establish a
“portfolio” of 4. To meet “buy
production sources. national” rules or
preferences in the
host country.

Supply Side Demand Side
6. To obtain 5. To gain visibility as
technology a “local” firm,
and skills. employing local
people, paying
local taxes.
6. To respond to
rivals’ threats.

To decide whether to invest overseas, there is a
useful model:

OLI
 Ownership advantages
 Location advantages
 Internalization advantages

 Need all 3 – or else don’t invest in FDI
 Instead – choose other method – export,
license, franchise, etc.

FDI decision should be made on the grounds of
these three factors:

1. Ownership advantages:
 (competitive advantages)
 the company’s competitive advantages, such as
proprietary technology, management skills, goodwill,
and economies of scale.
 a company should use foreign direct investment when
it has competitive advantages such as proprietary
technology or marketing skills that differentiate it
from competitors

2. Location advantages.
 (comparative advantage)
 the relevant cost, risk, and regulatory conditions in
the countries under consideration. These include
national production costs, tariffs, taxes,
international transportation costs; and political
risks.
 a company should use foreign direct investment
when the location factors favor local production
over importing from the home country

3. Internalization advantages:
 (advantages of horizontal and vertical
integration)
 the benefits that the firm would realize by itself
operating in the host country versus the benefits
of operating through a local distributor, licensee,
or other contractee.
 a company should use foreign direct investment
…and when it is more profitable for the firm to
produce for itself rather than to contract out with
another firm to produce for it (for example, under
a licensing agreement or for contract production).

If all three conditions do not hold, then another
strategy would be better.


 the eclectic theory says that a company
should use foreign direct investment when
a) it has competitive advantages such as
proprietary technology or marketing skills that
differentiate it from competitors;
b) when the location factors favor local production
over importing from the home country;
c) and when it is more profitable for the firm to
produce for itself rather than to contract out
with another firm to produce for it (for example,
under a licensing agreement or for contract
production).

If company has 2 out of 3:
 competitive advantages (O),
 and finds that producing for itself (I) would be
more profitable than contracting out to another
firm under license,
 but
 costs in foreign country (L) are higher than costs
in the home country,
 then should export its products


If company has other 2 out of 3
 (O) competitive advantages
 (L) and lower costs in foreign country than elsewhere,
 but
 (i) finds that contracting out to another manufacturer
would be more profitable than producing for itself,
 then
 company should license its products to the other
company for sale
 or should contract out the manufacturing and keep
the distribution and marketing business for itself.

If company
 (L) finds foreign country to be a cost-competitive
place to manufacture,
 (i) and company finds that it would be more profitable
to manufacture for itself rather than contracting out,
But,
 (O) no superior products or marketing skills
(competitive advantages),
 then the possible solutions would be
 a joint venture with another firm that does have
competitive advantages
 or the purchase of product lines that are differentiated and
competitive, to give company a competitive base in
foreign country.

 Three questions to ask:
 Are there potential benefits for our company?
▪ Don’t just follow competitors.
▪ Don’t overestimate the benefits
 Do we have the necessary management skills?
▪ (do you REALLY have the skills?)
 Will the costs outweigh the benefits?
▪ (extra coordination costs, setup costs, etc)

http://globotrends.pbworks.com/international+expans

 Examples of failed globalization strategies:
 ABN AMRO
 AES - (US power company)
 Daimler- Chrysler merger
 BTR - industrial conglomerate
 TCL - Chinese maker of electronics
 Kelda - a UK water utility
 Deutsche Telekom (T-mobile)
 Deutsche Post - overpaid for DHL and Airborne
 AXA - French insurance group
 BenQ- acquisition of Siemens mobile device business
http://globotrends.pbworks.com/international+expans

 new management requirements for
companies attempting to internationalize.
 Companies that are lacking in organizational
strength may want to consider selling or
licensing technology or brand name,
exporting, or franchising as less- risky ways of
going abroad

 Once a firm internationalizes, they typically
run into the dilemma of trying to achieve
global scale and local responsiveness at the
same time.

 A global manager also has to be on the
lookout for macroeconomic changes, and to
be aware that countries (and individual
states) have their own objectives, and that
there is a risk that those objectives might
change over time.

 You need to monitor changes in elections and
policies to see if country strategy and yours
become misaligned. This could result in
serious risk (or opportunities) for your
company.

1. International - typical USA

2. Multi-National - typical European
“multi-domestic”

3. Global - typical Japanese

Transnational - tries to combine best of all 3
Bartlett & Ghoshal, interpreted by Prof. Brian Butler

 “international” strategy – classic US based companies
strategy

 “International Product cycle”

 Products first developed for home market, only later
sold abroad

 Foreign subsidiaries as “outposts” - marketing and
sales appendages.

 Innovations developed at home, transferred abroad

 Managers assigned are often domestic
“misfits” who happen to know a foreign
language, or previously lived abroad


 Weakness
 lacked the corporate structure for capturing
worldwide innovation and learning.


 The classic “multinational” model is seen in
abundance with European firms

 manage a portfolio of relatively independent
national subsidiaries.

 With a long history of protectionism and wars,
European companies became very adept at
managing a decentralized federation, running
subsidiaries with a high level of autonomy.


 Emphasize differences among national
markets

 Flexible approach

 Modify products, strategies country-by-
country

 Multiple-nationally responsive strategies

 Managers of foreign operations
 Highly independent entrepreneurs

 Often nationals of foreign markets

 Use local market knowledge

 Seek local growth, using investment from parent
company


 One of the drawbacks, however
 is that they have given up global scale efficiency,
and may be redundant in many of their tasks.


 The “global” model which is epitomized by
companies such as Toyota, focused on
centralizing efforts and gaining efficiency
for exports,

 Centralized control

 Assume tastes globally are similar


 Weakness: lack of local responsiveness and
flexibility.

 Management: central coordination, central
control

 Research & Development – from home
country.


 Transnational companies are complex
organizations that attempt to extract the
benefits of “international”, “global”, or
“multinational” firms, but at the same
time, they try to mitigate the drawbacks
from each.


 A transnational firm is a very sophisticated
and complex one that requires a very subtle
management as it is attempting to eliminate
the inherent drawbacks of each of the
traditional structures and strategies.


 The transnational company is one that
attempts to capture all of the strengths of
these three global strategies, and attempts
to avoid any of the weaknesses.
 HIGHEST LEVEL OF SOPHISTICATION


 decentralizing decision making power and to
increase the local responsiveness to local
market conditions
 transnational mindset of brand management
where winning brands can be developed
anywhere
 local flexibility, global efficiency, or
worldwide learning

 transnational companies locate each of these
activities in an area that gives them the
largest competitive advantage, and lowest
costs for each individual function
 operations, R&D, sales, marketing, customer
service, and purchasing


 Manufacturing, for example, might be placed in
the location with the lowest factor input costs
related to labor,
 but R&D might be located in a place which has
advanced education, a history of innovation, or a
developed and highly competitive consumer
market.


 For example,
 the USA might be selected for design,
 China for manufacturing,
 UK for research,
 and India for call center outsourcing or software
design,
 creating many “centers of excellence” across the
globe, which are all globally linked together
through the value chain.

 Where should innovation come from?
 Just the USA?
 Just big multi-nationals?

 NO!!


 Two models
 center-for-global innovation model
▪ All innovation at home R&D center. Innovations
developed at home are later sent to the field
 locally-leveraged, but then globally-linked
innovation models.
▪ Innovation can come from anywhere.
▪ Companies try to “catch” innovation from the field.
▪ Share innovation from one emerging market to another


 The global market for knowledge is changing,
and it is common to find centers for
innovation in many non-traditional market
locations around the world.


 The old thinking
 USA was the best location for developing innovation,
which directly led to the strategy of “international”
that many US based companies followed.
 The idea was that the USA had the most sophisticated
consumer market, the most developed technology,
and the highest level of competition; which were all of
the ingredients for development of innovations that
could be exported in the product life cycle to the rest
of the world.


 New Thinking:
 Assumption challenged as other markets have
developed in their ability to produce global
innovations.
 As an example, “Skype”, a revolutionary VoIP
telephone service that was developed in Estonia
(not in Silicon Valley).


 New Thinking:
 Based on this new understanding of how
innovations can come from anywhere, companies
are attempting to capture worldwide knowledge
like never before.


 New challenges:
 The challenge for transnational companies is to
figure out how to capture and leverage this
worldwide knowledge base.
 If they can do this effectively, this is one of the
main sources of competitive advantage that a
transnational company will have over its
international, global, or multinational
competitors.


 In your own words, tell me 5 reasons that
international experience is important for your
career.

 (“international experience” could be = travel, or
internships, or study abroad, etc)

 Read this article:
 http://epocanegocios.globo.com/Revista/Common/0,,
EMI131166-16380,00-O+TRABALHO+E+PLANO.html
 “O trabalho é plano” Cada vez mais cedo, jovens executivos
constroem sua carreira em diferentes países dos cinco continentes
para conquistar vivência em outros mercados e culturas. Entenda essa
nova geração global e o que as empresas têm a ganhar com ela Por
Ivan Padilla e Marcos Todeschini
 Homework: read, and then think... In your own words,
tell me 5 reasons that international experience is
important for your career.

http://www.youtube.com/watch?v=UF8uR6Z6KLc

part 8: Global entrepreneurship class

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (11)

Similar to part 8: Global entrepreneurship class

Similar to part 8: Global entrepreneurship class (20)

More from Brian David Butler

More from Brian David Butler (20)

Recently uploaded

Recently uploaded (20)

part 8: Global entrepreneurship class