theme 7 Flashcards
what about Expanding ?
Expanding beyond your boarder is not easy and you do it to generate growth which translate to revenues but you also generate more costs .
You generate profit when you go out of your boarders to four or five countries that you can control but once you go beyond that into the zone where global ventures can be challenging (death zone) where you cannot control the countries and you have to get out of it as fast as you can because here is where costs exceed benefits. once go even bigger and broader to a certain scale is when you are able to reverse the situation to where benefits will exceed the cost again
Why do you decide to expand into foreign boarders ?
- Looking for new customers
- Achieve lower costs and economy of scale (called learning experience) like in the automotive industry where you need to achieve big number of sales to reach breakeven point and ur country might not have a big number of customers and because the more you produce the less the cost
- Exploit core competencies: when you know you have something special and you want to exploit it out and discover it more in another country
- Access for resources: for example, an IT company goes to Silicon Valley because it wants to have access to the capabilities available in that are in term of capitalists and software engineers
- Spreading risk by having a wider market base
what kind of risk and complexity will you get into if you decide to expand into foreign boarders ?
The risks and complexity
• Industry competitiveness factor: they are not the same in different countries for example competing in fashion in Antwerp has different characteristics than in China or Spain, so the same industry has different characteristics in different countries
• Location based advantages: they might not work out In other countries
• Differences in government policies and economic conditions: for example, in Asia they pay taxes for cars but in EU they don’t and that will affect the purchasing behavior and these conditions can change with time which make them more difficult
• Currency exchange rate risks
• Cultural differences , demographic and market conditions
The Diamond of Michael porter of national competitive advantage?
- Demand condition
- factor condition
- firm strategy
- related and supported industries
It is a framework tool that allows you to understand why certain regions are better than others in producing certain goods and services for example silicon valley is known because it is where you have big tech companies like apple, Facebook, oracle, and there is a lot of competition between them but there is also a lot of talent which are the factor conditions. There is also a lot of great universities
also there you have related supporting Industries who are supporting the finance of startups
Demand conditions are also very important
What will be the region or a country that makes best female shoes? And use the diamond to explain why
The answer is north of Italy, and we explain why by using the diamond
• Demand conditions: if you look historically to that region, in the old time people were using leather shoes and these shoes had to be strong and durable to withstand the rain snow etc… so they learned with craftsmanship to make these high quality very good shoes in order to supply for high demand conditions like skiing in the alps. At the same time Italy is known for fashion so you add the demand not only for this type of shoes but also the strong demand for fashion
• The factor conditions are the input for the industry which is having for having in that region for 150 years the craftsmanship where people became expert in making fashion and sturdy shoes
• Firm strategy, structure and rivalry: when you add the rivalry between these shoe makers and family companies and small companies that create superior performance
• Related and supported industries: one of the best designers in the world in shoes, fashion, cars are located in north Italy so in that region you have these people designing great products which can be used in designing shoes. You also should add the banks that are supporting these small businesses
The locating value chain activities for competitive advantage ?
- lower wage rates
- low energy cost
- lower tax rates
- unique natural resources
how government policies can affect the complexity and riskiness of expanding
political risks for example the government can suddenly decide to take ur assets or change all the rules and take the land or the resources like gas and oil
Exchange rates ?
For example, after the Brexit the pound lost some value to the euro which makes it for the brits to export other products form EU countries but makes it for EU countries cheaper for shopping or having a holyday in London, so exchange rate are a factor to add or reduce you costs
Cross country differences ?
You may need to customize your services or products for example, if you MacDonald’s and you provide pork in food it will not work in Asia, Malaysia and other Muslim countries where they don’t eat pork and the same for alcohol
How you go outside your boundaries ?
There are two options:
Transactions :
- Exporting (foreign agent)
- Licensing ( Franchise)
Direct investment :
- Joint venture
- Wholly owned subsidiary
in the transaction model there is low resource commitment
while in direct investment there is high resource commitment
Example: if you just export you do obviously have a commitment but it is reasonably small in the sense that you export but risks are not too high compared to franchising where you don’t export a product but it is a part of licensing where you as a local partner take care of the location and pay a franchising fee to use their brand and follow the exact procedures you are giving but you hire and fire is up to you as a franchisee.
A joint venture is a higher commitment investment, it means two partners are fully integrated and investing in an organization
A wholly own subsidiary like Microsoft did in shanghai that means they are completely responsible for investment there and they will carry all the risk and issues in that subsidiary which means a really high commitment
Ecosystems?
like apple they are creating everything and becoming dependent on themselves like the recently chip they created which will allow them not to be dependent on Intel core processors
also they and Microsoft and amazon and Facebook and google and many others in the cloud industry are creating this system including not only operating system but also in other places like social media and mobile payments, also like the currency by Facebook
these companies are using cloud technology to enhance and enlarge their eco system
approaches for competing internationally ?
- Global strategy : think global / act global
- Transactional strategy : think global / act local
- Multidomestic strategy : think local / act local
Toyota in some places offer model that in other places they don’t which means they offer products based on the country (multi domestic strategy)
Building competitive advantage in international markets ?
Using international location to lower cost or differentiate a product: means that the using the same usual strategies (cost leadership or differentiation) in different countries
Share resources, capabilities and competencies: share the same resources and all of that in different parts in the world
Cross border coordination benefits: if you have experts in Amsterdam and you can combine these expertise in Brussels by coordinating those competencies in cross boarder coordination
what are the benefits of global strategy ?
- Cost benefits of scale and replication
- serving global customers
- exploiting national resources
- learning benefits
- competing strategically
