2. Growing and Competing Globally Flashcards
How to enter a market?
Target countries with a strong demands for your products and services.
Seeking efficiency: lower labor costs, real-
estate costs.
Seeking capabilities.
Porter’s Diamond of
National Competitive Advantage
Factor conditions
Demand conditions
Competitive intensity in focal industry
Related and supporting industries/complementors
When to enter?
First-mover
Later-mover
First-mover advantages
- Proprietary, technological leadership
- Preempt rivals
- Create entry barriers for later entrants
- Relations with key stakeholders (governments)
Later-mover advantages
- Free-ride on first movers’ investments
- First movers face greater uncertainty
- Flexibility and agility
In digital economy, who wins the race?
Imitators, who turn out to
be more creative and agile than initial
movers.
How to enter?
Contract-Based: Exporting
Strategic Alliances: Licensing, Franchising, Equity alliances, Joint Ventures
Subsidiary: Acquisitions, Greenfield
Product diversification
What range of products and services should the firm offer? Which markets should it enter? Which markets to exit?
Geographic diversification
Through entries into different countries.
Limited international scope.
Extensive international scope
Conglomerate
Combine both product and
geographic diversification
Related diversification
Expanding into products or services with relationships to the existing business (“strategic fit”)
Unrelated diversification
Development of products or services beyond the
current capabilities and value configuration, i.e. with
no relationships to existing business.
Three ways to diversify into new businesses
- Organic development (Build)
- Mergers and Acquisitions (M&A) (Buy)
- Strategic alliances (Borrow)
Organic Development Advantages
−Maintain control
−Keep all profits
−Easy integration/ cultural compatibility
Organic Development Disadvantages
−Slow
−Risky
−Capability & resource requirements
−Competition & entry barriers
Strategic Alliances Advantages
−Benefit from complementary strengths
−Gradual/reversible move
−Limit involvement
−Share investments & costs
−Learn & acquire new capabilities
Strategic Alliances Disadvantages
−Share the profits
−Problems with partner
−Lose control
−Transfer skills & create a competitor
M&A Advantages
−Fast access to new resources/market
−Full control
M&A Disadvantages
−Price premium for control
−Information asymmetry/real value
−Integration problems (Culture/organizational issues)
Which of the three ways to diversify into new businesses fails at 70%?
M&A
