Chapter 11 - Global Strategy Flashcards
Internalization framing tool
=> going global or not
- potential benefits for the company?
- have the necessary management skills?
- Costs outweigh benefits?
Motives for internationalization
- talent + skills
- resources + spaces
- risks
- competitive moves
- market related
Talent + skills (motives for internationalization)
- recruitment of young talents
- improved career tracks
- new management practices
- personal interest in internationalization
Resources + spaces (motives for internationalization)
- spatially distant rare material access
- access to clusters (like Silicon Valley)
Risks (motives for internationalization)
- diversify business cycle risks
- diversify currency risks
Competitive moves (motives for internationalization)
- attack competitors at home
- take-over other firms before competitor can
Market related (motives for internationalization)
- conquer new markets
- global market for higher growth
- overcome domestic growth barriers
- escape domestic regulations
- prolong product life cycle
Reasons for suboptimal internationalization performance
- Disregard of available data, especially on local competition and supply.
- No adaption of pricing, sales and marketing channels to local culture and institutions.
- No adaption of product portfolio to local preferences.
- No delegation of responsibility to local experts.
- Suboptimal logistics and operations on a spatial scale.
- Rush into B-locations. Not enough time to organize access, assets and/or acquisition.
- No adaption of branding the local language
The liability of foreignness
- inherent disadvantage in host countries bc of non-native status
The liability of foreignness Major aspects for existence
- differences in formal + informal institutions i. Foreign countries
- formal + informal discrimination
Overcoming the liability of foreignness
Convincing the costumer even despite the liability of foreignness
=> deploy superior resources + capabilities creating competitive advantage
Entry strategy - main questions
1) where to enter?
2) when to enter?
3) How to enter?
Where to enter ?
- spaces linked to strategic goals
- geographical advantages
- social advantages
Spaces linked to strategic goals type
- natural resource seeking (eg. Lithium Chile)
- market seeking (Seafood Japan)
- efficiency seeking (Manufacturing China)
- innovation seeking (IT Silicon Valley)
Spaces linked to geographical advantages
- Access to ocean, fertile regions, sun
- access to low salary/ mega cities
- spatial concentration of economic activities
Spaces linked to social advantages
- cultural distance: difference between 2 cultures
- institutional distance: comparing social institutions
Systematic multiple screening - where to enter
- first row estimate
- deepen screening only for good prospect candidates
- final selection of interesting candidates
Potentially relevant aspects for structuring an estimate - where to enter
- Sales + profit forecast (strategic goal: market seeking)
- resources + incentives (strategic goal: natural resource seeking)
- risks / subrisk
Market potential?
1. entry conditions (import regulations + logistic / operative constrains) 2. Competition (Industry structure + key competitors) 3. Distributions channels ((inter-company) value chain) 4. Consumer behavior (Consumer reaction to product + brand) 5. Marketing intensity (How is marketing + promotion done) 6. Factor cost (labor, capital, taxation...) => sales + profit forecast
screening for natural resource seeking
- Resources
- Incentives
(- Market + competition)
Another angel for screening - risks + subrisks
- political risks (shareholder/ employee/ operational exposure)
- competitive risks (corruption/ cartels/ networks)
- operational risks (infrastructure/ regulations)
- economic risks (growth/ inflation/exchange)
When to enter
- first mover
- late mover
First mover advantage (Internalization)
- property, technological leadership
- preemption of scare resources
- establishment of entry barriers for late entrants
- avoidance of clash with dominant firms at home
- relationships + connections with key stakeholders
Later mover advantage
- opportunity to free ride in first mover investments
- resolution of technological + market uncertainty
- first movers difficulty to adapt to market changes
How to enter - the scale of entry
- large-scale entry
- small scale entry
Large scale entry ( + drawback)
> demonstration of strategic commitment
- helps to assure local costumer + suppliers
- deters potential entrants
drawback
- limited strategic flexibility elsewhere
- potential huge losses
Small scale entry
- less costly
- focus on accumulating experience
- learning by doing while limiting downside risk
> drawback - lack of strong commitment
- difficulties on building market share +/ capturing first mover advantages
Two step process (how to enter)
- equity vs. non-equity mode
2. precise form of mode
Non-equity modes (1. step decision)
Exports + contractual agreements
- > reflect relatively small-scales commitments
- > don’t require the establishment of independent organizations
Equity modes (1. step decisions)
Joint ventures + wholly owned subsidiaries
- > reflect relatively large-scaled + less reversible commitments
- > call for establishment of independent organizations
Step 2 precise form - types
> non equity modes - exports - contractual agreements > Equity/ FDI modes - joint ventures - wholly owned subsidiaries
Exports
- direct exports
- indirect exports with intermediary firms
Direct exports advantages
- direct contact with the foreign market
- economies of scale in production concentrated in home country
- better control over distribution
Direct exports disadvantages
- transportation costs
- distance to costumers
- trade barriers
- protectionism
Indirect exports disadvantages
- less control over distribution
- curbed learning opportunities for operation in foreign market
Indirect exports advantages
- intermediary firms provide knowledge + networks
- economies of scale in production concentrated in home country
- overcome information asymmetries i. foreign markets
Contractual agreements
- licensing
- franchising
- turnkey projects
- R+D contracts
- Co-marketing
Licensing
Licensor permits licensee to use assets for royalty fee Licensor provides combination of: 1. Intellectual assets 2. Supporting assets Licensee compensate licensor
Franchising
Specialized form of licensing
Franchiser sells intangible asset to a franchisee for a royalty fee
Franchisee agreed to abide strictly rules
Licensing/ franchising pro + cons
+ low development cost
+ low risks
- little control over technology + marketing
- curbed global coordination
- may create competitors
Turnkey projects pro + cons
+ profits in countries where FDI is restricted
- lack of long term presence
- may create efficient competitors (trained personnel)
R+D contracts pro + cons
+ access innovation hubs/ sources at low costs
- difficult to negotiate + enforce contracts
- may lead to loss of core innovation capabilities
- may create innovative competitors
Co- marketing pros + cons
+ higher customer reach
- limited coordination
Joint ventures
- entity owned by two/ more patent companies
- each party has equity + take risks
Wholly owned subsidiary (WOS)
=> entry mode with highest resource commitment + control
- establish own value chain activities in foreign market
WOS variations
- miniature replica of headquarters
- R+D-, sales-, purchasing-subsidiary
- Production subsidiary => entourage production //assembly process
WOS modes
- Greenfield
- Acquisition
JV pros + cons
+ sharing costs + risks (but also profits)
+ access (knowledge + assets)
+ politely acceptable
- divergent interest of partner
- Limited operational control
- coordination complexity
Greenfield pros + cons
+ complete equity + operational control
+ protection of know-how
+ ability to coordinate globally
- politically less acceptable
- planning costs
- adds capacity to industry
- slow entry speed
Acquisition pros + cons
+ same as greenfield
+ industry capacity stays fixed
+ fast entry speed
- politically less acceptable
- post.-acquisition integration costs
Global strategic sets of pressure for MNEs
Two major sets of pressure
1) cost reduction => calls for global integration
2) local responsiveness = pressure to react to local preferences
=> opposing forces => trade-off problems
Global strategic configuration types
- home replication
- localization
- global standardization
- transnational
Home replication pros + cons
+ use of home country based advantages
+ easy implementation
- lack of local responsiveness
- foreign costumer alienation
Localizations pros + cons
+ maximal local responsiveness
- high costs due to multiplication of tasks
- lack of global coherence
Global standardization pros + cons
+ use of low-cost advantages
+ strong global coherence
- lack of responsiveness
Transnational pros + cons
+ partially cost efficient
+ partially locally responsive
+ global learnings + diffusion of innovation
- organizational complex
- difficulty of implementation
Global standardization strategy
standardized products sold throughout the world
high pressure for low cost
low pressure for local responsiveness
Transnational strategy
combination of transnational integration (low cost) + benefits of being local responsive
high pressure for low cost and for local responsiveness
Home replication (export)
replicated domestic business model + core competencies to enter international market
low pressure for low cost and for local responsiveness
Localization strategy
operating separate subsidiaries that develop specific products meeting local market demand
low pressure for low cost
high pressure for local responsiveness
