9.3 Assessing internalisation (includes Bartlett & Ghoshal matrix) Flashcards
What is internationalisation/ globalisation?
(Pages 246 & 247)
Countries are becoming more linked through markets & production.
There is an increasing mobility of resources including flows of money, goods & services around the world.
Why is globalisation/ internationalisation important for managers?
- They need a broader vision than in the past.
- They have more markets in which to recruit, a greater cultural diversity in their workforce, a broader customer base & more market opportunities around the world.
- They also have more potential threats & face more competitive markets now that there are fewer barriers to trade globally.
What has caused greater internationalisation?
- Trade agreements.
- Improvements in transport.
- Improvements in communications technology.
Trade agreements
What does this enable?
Trade enables businesses in one country to focus on producing the goods & services which they are good at (comparative advantage) & buy in the items that can be produced efficiently aborad.
Trade agreements
What should this enable for the country & consumers?
- The country & consumes as a whole benefit from a wider range of products than it could produce domestically.
- Consumers should benefit from better value for money- as items can be purchased from the best & most efficient producers around the world.
- Producers equally have access to the best suppliers in the world.
What is free trade?
Occurs when there is trade between countries without barriers such as tariffs & quotas.
What is a tariff?
A tax placed on foreign goods & services.
What is a quota?
A limit on the number of imported goods & services.
What is a customs union?
Occurs when there is free trade between member countries but an agreed tariff on non-members.
What do worldwide government organisations such as the World Trade Organisation exist to do?
- Exist to encourage governments to have more free trade.
- There have been many numerous trade agreements -either establishing/ extending areas in which there is free trade between member countries so businesses can easily produce/ sell there.
- This means they remove the taxes of foreign goods (tariffs) or limit the amount of foreign goods that can be imported into the country.
Why does not everyone favour free trade?
- Particular domestic industries can’t compete effectively globally- more openeness may lead to closure & redundancies.
- Producers- that are worried about their competitiveness may try to put pressure on governments to protect them.
- Some businesses may prefer for their country to be free to make its own trading policy rather than be part of the organisation & follow rules.
What has made it easier for businesss to operate around the world?
Technology- particularly information & communications technology
What have developments in technology and communications brought for businesses?
- The price of international phone calls has fallen dramatically- allowing communications with overseas offices & staff affordable.
- It is now possible to pass huge pieces of data required to run a business around the world closer to each other in terms of what they watch, read & listen to.
- The internet, newspapers, radio and Tv are making people more similar in their tastes, creating global markets.
Transportation costs
What has happened to them & what was one of the biggest breakthroughs?
- Transportation costs have fallen dramatically.
- It is now much cheaper to move items by air/ sea.
- One of the major breakthroughs = the development of containerisation.
Transportation costs
What does containerisation do?
Through standardising the size & design of containers, they can be fully loaded, quickly lifted off or onto a lorry, put onto a boat & stacked efficiently.
This will massively reduce unit costs!
Greater internationalisation & the opening of borders create opportunities for businesses in relation to what?
Selling products abroad.
Buying inputs from abroad.
Producing abroad.
Selling in overseas markets
Why may it be attractive to sell abroad?
A larger population- so larger consumer base- higher sales- fast growth (particularly in emerging economies).
The opportunity to reduce risk- By spreading sales more globally, if sales in one market fall, they may be compensated by rising sales elsewhere.
Using Andoffs matrix, what would entering an international market be an example of?
- Market development if the products are essentially the same as those being offered in domestic markets OR diversification if the products are new.
- Both these strategies involve the risk of entering a new market but help spread risk at the same time by operating in new areas.
What are the methods of entering international markets?
Exporting
Licensing
Alliances/ ventures
Direct investment
What is exporting?
- Occurs when a business continues producing domestically but sells (exports) some of its products abroad.
- Relatively low risk & involves a low level commitment to overseas sales in terms of finance & management times.*
What is licensing?
- When a business sells the right to an overseas business to produce/ sell its products.
This provides the business with a local presence. Can provide valuable insights into the business environment of the country & provide networks & market links.
What are alliances/ ventures?
- Occur when a domestic business works in a partnership with an overseas business- perhaps share the investment & risk together in terms of building a brand & market presence.
- This gives the UK business access to local expertise & contacts & shares the risk, but doesn’t involve sharing the profits too.
What is direct investment?
- Involves the greatest level of commitment from the domestic business.
- Involves investing overseas- perhaps to establish outlets/ production facilities.
- Requires relatively high funds & a high-risk decision.
- When a business has its own operations abroad- is called a miltinational.
What are mulinational companies?
Organisations that have production bases in more than one country.
Why are multinational businesses welcomed by overseas governments?
- Bring skills & expertise.
- Bring employment.
- Bring investment.
- Increase demand for local goods & services.
- Increase tax revenue.
Why have multinational companies been criticised?
- Exploiting local resources & not sharing the rewards of the business with the local economy.
- Keeping senior jobs for their staff & employing local employees for low-level jobs.
- Keeping the majority of the profits for their own head office & not investing locally.
- Finding ways to avoid paying high levels of tax.
- Being involved in corruption to win contracts.
Why is being international good for the business iself?
- Gives it direct access to local markets- may help it to overcome trade barriers against ‘foreign businesses’ as operated within the country.
- Means production is closer to local customers- may improve the speed of responses- cut transporting costs- fit with desire to buy locally produced products.
- May involve subsidies & tax incentives from the local gov which is eager for this investment- can reduce costs.
- Spreads risks of being independent on one country /one production base by having more than one around the world. If there is natural disaster in one -another may still be able to produce. If demand in one fell- may still be growth in another market.
What may the difficulties of being a multinational business be for the business?
- Bring management challenges- may be more complex to manage a business with base in different countries.
- Practical issues of communication & issues such as cultural differences, differences in labour markets, government regulations & ways of doing business.
- Bring criticism from some groups if the business is said to be abusing its power in any way/ if there is pressure to buy local brands not global ones.
What factors must be considered when a business decides which markets to target abroad?
- The size & growth of the market
- The expected costs of entering the market.
- The macro environment- PEST-C analysis
- How culturally similar the country is to the UK
- The degree of competition
- The perceived risk involved.
- The fit with the overall strategy of the business & its competences.
- The extent to which the business has to be adapted for local requirements.
- The impact on the business of overseas growth.
Why may businesses want to produce abroad?
(page 543)
- It costs less.
- It may be nearer to resources.
- It may be more efficient to produce locally in overseas markets & sell there.
- There may be particular skills/ expertise in a given area.
- It may overcome barriers to trade.
What is outsourcing?
If production is moved abroad.
What is re-shoring?
Occurs when a business moves its production to the domestic country.
Why may re-shoring take place?
- Problems maintaining quality abroad.
- Problems with delivery from overseas. Local production may be more flexible to demand.
- A fall in the cost differential. E.g. if wages overseas rise faster than domestically.
- A desire to be seen to support domestic production & create jobs locally.
What are the influences to produce or sell abroad?
(page 543)
- The pressure for growth. (E.g. from investors- if fast growth is required- it may be the domestic market doesn’t offer enough overseas opportunities & overseas expansion = key!)
- The pressure for lower costs (managers may be forced to search gloablly for the lowest cost resources/ production sites.)
- Location (Need to be closer to overseas markets may affect location decisions.)
- The availability of suitable resources locally (may be necessary to source inputs overseas if not available locally)
- Politics/economics (Political & economic situation may affect the ease with which business can be undertaken overseas.)
What may businesses consider when considering entering international markets?
- Extent to which local markets differ in terms of customer requirements.
- Costs of adapting products to local needs
- Economies of scale from standardising products and selling the same products all around the world
- The ease of managing the business centrally from one location
What can the strategic options open to managers be shown using?
What two factors?
Bartlett & Ghoshal (1991) matrix
In this matrix- the choice of strategy can be analysed in relation to two factors-
- The pressures for local responsiveness
- The extent to which the business wants to be globally integrated.
Bartlett & Ghoshal (1991) matrix
The pressure for local responsiveness- what is this?
The extent to which local tastes differ & the need to adapt products as a result.
Bartlett & Ghoshal (1991) matrix
The extent to which the business wants to be globally integrated- what is this?
Where all the international units are working together within the overall whole- or less integrated where they operate more independently.
Bartlett & Ghoshal (1991) matrix
What are the 4 strategic options on the matrix?
International
Multi-domestic
Global
Transnational
Bartlett & Ghoshal (1991) matrix
Strategic option- International
What does this mean?
- The business is mainly focused on its domestic operations.
- Products are not adapted for the international market; the existing prodcts are simply sold abroad.
- This means the products are not responsive to local markets.
- International business less important than domestic business
- Products are designed for the domestic market & international market is seen mainly as a way to boost sales
Bartlett & Ghoshal (1991) matrix
Strategic option- Multi-domestic
What does this mean?
- Different parts of the business operate fairly independently in their own regions.
- Overall business- a collection separate units that operate alone.
- Each one adapts to its local environment- terms of what it offers & how is run- decentralised structure.
- Each region essentially runs itself- so overall organisation is a collection of different local businesses (multi-domestic)
- Disadvantage of approach- resources are not shared between the seperate companies.
Bartlett & Ghoshal (1991) matrix
Strategic option- Global
What does this mean?
- Products- fairly standardized around the world.
- Common in industries where the product does not need to change in different markets.
- Business is integrated in that it follows similar policies & approaches wherever it operates.
- In a global business- the ways of doing things- set by head office- so business is very centralised.
- Can lead to economic of scale & management efficiencies.
- Business- is run from the centre with overseas operations as ‘satellites’- implementing head office policies- business is integrated from the head office.
Bartlett & Ghoshal (1991) matrix
Strategic option- Transnational
What does this mean?
- Approach- aims to maximise responsiveness & integration across all divisions around the world.
- Products- adapted to meet the needs of local markets & respond to their different needs.
- Business is very integrated- shares ideas, technology, resources & discuss different ways of doing things.
- Transnational- is not dominated by a domestic head office setting out what everyone does- it gives more input to businesses around the world to collaborate with each other- areas such as operations, finance, HR etc.
- Staff moved between centres - unite business.
- Responds locally whilst benefiting from being a global business.
What are the risks of internationalisation?
- Cultural differences.
- Differences in negotiating & decision- making style.
- Ethical standards.
- Anti-globalisation feelings.
- Instability of the country.
Why do some pressure groups have Anti-globalisation feelings?
- Local businesses & cultures are destroyed by large multinational companies. Critiques argue they are destroying local business & making the world too similar!
- Too big multinationals are exploiting local businesses & employees- e.g. produce in a country & make use of natural resources- yet profits do not remain in the country- are exported overseas!
How does internationalisation impact on the functional areas of a business?
- Market Research- need to find out more about new markets & segments to target.
- R&D- as business develops new products/ modifies existing products for overseas markets.
- Purchasing of supplies- have access to far more suppliers around the world- communications technology enables to identify, contcat & manage relationship more effectively.
- Production- may look to produce overseas to benefit from lower costs, better skills & technology & availability of resources.
- Marketing decisions- how to promote & price products & how to distribute them.
- HR- How & where to recruit, rewards offered & how best to manage people.
What may a businesses decision to offshore production lead to?
- A relocation of production facilities & the development of the operation abroad (operations).
- A reduction in staff domestically & the recruitment of employees overseas (HR issues). Managing staff abroad -different- differences in labour market, skills & expectations of workforce, cultural differences & employment legislation.
- Lower costs
- Marketing may be affected if the business can build on the regional strengths of where product is produced.
The decision for a business to target new overseas markets may lead to what?
Changes to the product & ways they are promoted (adapted for new segments)
Changes to the operations process- to be able to produce products suitable for the new market.
Changes to HR decisions- if business is operating overseas- will need to recruit & train staff abroad.
Changes to finances- May be initial costs & investments to establish a presence overseas- but long term overseas sales may lead to higher profits.
