Week two - international strategy Flashcards
when does the internationalisation strategy become a key response
when the globalisation or globalisation of the economy is the future trend for all sectors
list some development strategies
- market penetration
- product development
- market development/expansion
- growth via diversification
how does international strategy compete against other growth options
it requires having a broader scope and managing increased complexity
what is the international strategy?
the management process through which the companies assess the changing conditions of the international environment and how they develop accurate organisational responses
why do firms go international
- drivers: push, pull, facilitating
- conditions: factor, demand, related industries, home rivalry, role of government (porters diamond - comparative advantage)
threats in the home market (push factors)
- saturated mature home market
- legal hinders
- growing costs
- economic conditions
- demographic evolution
opportunities in foreign markets (pull factors)
- growth opportunities
- niche opportunities
- competitors follow up
- customers follow up
- technology
facilitating factors
- firms experience
- lower barriers to trade and investment
- communication technologies
- management vision and values
- learning from other firms
two classifications of pull factors and what are they
1) market seeking - firms quest to go after countries that offer strong demand for their products and services/need to be located close to the customer, e.g. market growth, market size and per capita incomes etc.
2) natural resource seeking (self-explanatory), e.g. national resources, skill labour, technology
two classifications of push factors
1) strategic motives - firms target countries and regions renowned for generating world-class innovations, e.g. competitors/customers follow up, geographical diversification
2) efficiency seeking - firms quest to single out the most efficient locations (combo of scale economies and low-cost factors), e.g. low transport and communication costs
systematic selection process
1) initial screening
2) industry sales potential
3) firms potential sales
4) identification of market opportunities
how do companies expand internationally
entry modes: exports, licenses, direct investments
what is foreign entry mode decision
the way that a firm wants to carry out its business activities and the degree of engagement in a foreign market, either by exporting, licensing or establishing their own subsidiaries
examples of licenses
- distribution agreements
- franchises
- management contracts
- manufacturing contracts
- patents
what are some internal barriers for exporting on a micro level
- difficulty in selecting reliable distributors
- lack of negotiating power
- little understanding of target market
poor organisation of exports department - inability to access information
- short international experience
what are some external barriers for exporting on a macro level
- lack of proper trade institutions
- lack of incentives and protection from the government
- political instability
- legal and political problems
- demand insufficiency
- adaptation problem of market entry
what is a direct export
this occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market
what is an indirect export
this involves the use of independent middlemen (brokers, bank) to market the firms products overseas
pros and cons of using a broker etc.
- pros: simplest an cheapest mode, no experience required
- cons: lack of control over market strategies and selection of markets
pros and cons of using independent agents, trading companies etc. (indirect export)
- pros: learn from specialist, shared costs, fee dependent on sales and lower risk and higher flexibility
- cons: not all markets are covered, post sales service cannot always be granted and higher dependency
pros and cons of using a ‘piggy back’ (indirect export)
- pros: simple and low risk, benefits from the ‘carriers’ knowledge, increases the product portfolio, makes it easier to achieve scale and scope economies
- cons: the ‘riders’ brand is not perceived by the final customer and there are problems related to post sales services
what is piggy-back exporting
a foreign distribution operation where your products are sold along with those of another manufacturer, often used by companies that have related or complementary (non-competitive) products
pros and cons of direct exports
pros:
- higher number of marketing activities
- high control of exports
- higher feedback
- freedom for selecting the target markets
- concentrated manufacturing
- lower complexity and cost
cons:
- higher cost and risk
- lower flexibility
- exploitation of location advantages of foreign countries
- transportation costs, tariff and non-tariff barriers
pros and cons of licenses
pros:
- facilitates quick expansion
- low cost
- access to distant markets
- use of ghost market knowledge
- no extra resources needed
- low capital investment required (high return on initial investment)
- wide range of contractual agreements
cons:
- difficulties in finding the right partners
- risk of losing control
- the licensee may become a new competitor when the license runs out
- may be hard to keep the standards (especially with franchises)
what is licensing
a business agreement involving two companies, one gives special permissions such as using patents or copyrights, in exchange for payment
what is a management contract
a legal agreement where the asset holder employs an operator to professionally manage the hotel
how long do management agreements usually last
around 20-50 years
pros and cons of joint-ventures
pros:
- shared cost and risk - acceleration in the international process
- exchange of resources, knowledge and experience
- a way for achieving higher size for competing
- may be the first step to test a market
- may help overcome governmental restrictions to FDI
- take advantage of contacts of partner network
cons:
- hard to find right partner
- shared revenues
- difficult organisational and cultural fit
- problems with control
- opportunistic behaviour of the partners
- hard to integrate the alliances portfolio
- lack of independence
pros and cons of acquisitions
pros:
- lower start-up costs
- fast entry mode
- generates cash flow from the beginning
- good opportunity for acquiring local knowledge and contacts
- fast way to diversify
cons:
- institutional and cultural barriers
- integration problems
- less synergies than expected
- exit barriers
rigidness and inertia from previous manager
- complexity in the assessment of the value of firms
- public funds are harder to get in acquisitions compared to new investments
pros and cons of Greenfields
pros:
- the subsidiary is created from scratch with no restrictions
- new image
- total control over management/operations etc.
- easier to achieve economies of scale
- most profitable option in the long term
cons:
- high cost and risk
- difficulties in distant markets
- time elapsed to obtain profit
factors influencing entry mode choice
- market potential
- country risk
- cultural distance
- company size and experience
- intangible resources
factors influencing entry mode choice
- market potential
- country risk
- cultural distance
- company size and experience
- intangible resources
what is the sequential internationalisation process also known as
scandinavian/uppsala model
what is meant by sequential
forming or following in a logical order or sequence
critics of the scandinavian model
- many companies do not follow it
- increased market homogeneity
- many firms need to follow their customers or competitors
- need managers with international experience
what are the four types of firms using the degree of internationalisation of firms and markets
- pioneering firm
- delayed firm
- lonely firm
- firm in a global network
how do companies expand internationally
entry modes (exports, licenses, direct investments)
what factors influence the decision for companies to begin in international activities
reactive and proactive, systematic process and emerging strategy
according to literature what percentage of internationalisation follow the uppsala model
80%
what are the stages of the sequential process
1) sporadic export
2) export through agents
3) sales subsidiaries
4) manufacturing subsidiaries
what is the network approach
the network approach suggests that firms develop relationships with clients, distributors and suppliers creating an industrial market that allows an understanding of the International growth of the firm
how is the network approach different to the Uppsala model
1) abandons the idea that internationalisation results from a rational decision process - instead is influenced by the network
2) introduces the idea of market relationships
3) considers the characteristics of firms and markets
