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Essentials of strategy formulation in international business
1.
2. Workshop Agenda
INTERNATIONAL MARKET ENTRY
MODES
PROCESS OF INTERNATIONALISATION
THEORETICAL/CONCEPTUAL
FRAMEWORKS
BOARD MEETING ACTIVITY
3. BASIC FOREIGN EXPANSION
ENTRY DECISIONS
International Market Entry
Which markets to enter
When to enter these markets
What is the scale of entry
4. WHICH FOREIGN MARKETS
Favorable
Politically stable developed and developing
nations
Free market systems
No dramatic upsurge in inflation or private-sector
debt
Unfavorable
Politically unstable developing nations with a
mixed or command economy or where
speculative financial bubbles have led to excess
borrowing
5. EARLY MARKET ENTRY
Advantages
First-mover advantage.
Build sales volume.
Move down experience curve and achieve cost
advantage.
Create high switching costs.
Disadvantages
First mover disadvantage - pioneering costs.
Changes in government policy.
6. MARKET ENTRY SCALE
Large scale entry
Strategic Commitments - a decision that has a
long-term impact and is difficult to reverse.
May cause rivals to rethink market entry.
May lead to indigenous competitive response.
Small scale entry
Time to learn about market.
Reduces exposure risk.
8. Exporting
Advantages
Avoids cost of establishing manufacturing
operations
May help achieve experience curve and location
economies
Disadvantages
May compete with low-cost location
manufacturers
Possible high transportation costs
Tariff barriers
Possible lack of control over marketing reps
14-8
9. Piggy backing
Distribution of products is through utilising the
international distribution network of other
international manufacturers.
Advantages
Effective entry strategy into developed countries
Cost-effective
Economies of Scale
Disadvantages
Often poor channels of marketing communication
Locked into non strategic unsatisfactory arrangement.
10. Turnkey projects
Contractor agrees to handle every detail of
project for foreign client
Advantages
Can earn a return on knowledge asset
Less risky than conventional FDI
Disadvantages
No long-term interest in the foreign country
May create a competitor
Selling process technology may be selling
competitive advantage as well
14-10
11. Licensing
Agreement where licensor grants rights to
intangible property to another entity for a
specified period of time in return for royalties
Advantages
Reduces development costs and risks of establishing
foreign enterprise.
Lack capital for venture.
Unfamiliar or politically volatile market.
Overcomes restrictive investment barriers.
Others can develop business applications of intangible property.
14-11
12. Franchising
Franchiser sells intangible property and
insists on rules for operating business.
Advantages
Reduces costs and risk of establishing enterprise
Disadvantages
May prohibit movement of profits from one
country to support operations in another country
Quality control
14-12
13. NATURE OF
STRATEGIC
Range of assets possessed by Partner Range of assets possessed by
ALLIANCE
A in home country Partner B in international market
Market access / distribution Product-market knowledge
Manufacturing competence
Franchising Market access/distribution
Manufacturing competence
Raw materials Licensing Process know-how
Management
Marketing
Product-market knowledge Product-market know-how
Partnership
Market access / distribution Product process know – how
Manufacturing competence Joint Product-market knowledge
Raw materials ventures Raw materials
Management Management
(Bradley, 2005:241)
14. Joint Ventures
A foreign company invites an outside
partner to share stock ownership in the new
unit. The ownership could vary for
companies accepting minority or majority
position in the Joint Venture.
(Jeanet & Hennesey, 2004:300)
15. JOINT VENTURES
Advantages
Access to new markets and distribution
networks
Benefit from local partner’s knowledge.
Shared costs/risks with partner.
Reduced political risk.
16. JOINT VENTURES
Disadvantages
Ambiguous objectives.
Partners have different objectives for the joint venture
Imbalance of Expertise
Poor integration due to different management styles and
cultures brought in.
Early stages are difficult.
17. WHOLLY OWNED SUBSIDIARY
Subsidiaries could be Greenfield investments or
acquisitions
Advantages
No risk of losing technical competence to a competitor
Tight control of operations.
Realize learning curve and location economies.
Disadvantage
Bear full cost and risk
18. STRATEGIC ALLIANCES
Cooperative agreements between potential or actual
competitors.
Advantages
Facilitate entry into market
Share fixed costs
Bring together skills and assets that neither company has
or can develop
Establish industry technology standards
Disadvantages
Competitors get low cost route to technology and markets
19. Why Strategic Alliances
High cost of technology development
Reduction of Psychic Difference
Good way to secure access to foreign markets
Host country may require some local ownership
20. Global Alliances
Firms join to attain world leadership
Each partner has significant strength to bring to the
alliance
A true global vision
Relationship is horizontal not vertical
When competing in markets not part of alliance, they
retain their own identity
21. Partner selection
Get as much information as possible on the
potential partner
Collect data from informed third parties
Former partners
Investment bankers
Former employees
Get to know the potential partner before
committing
Expert Opinion
22. Characteristics of Strategic Alliances
(HILL 2005:500)
Independence of
Participants
Benefits Technology
Control Products
Shared Ongoing
Benefits Contributions
Markets
Cooperation
23. Managing the alliance
Build trust
Relational capital
Learning from partners
Diffusion of knowledge
24. Wholly Owned Subsidiary
Stage 4
L installation of foreign
production facilities
E
V
E Stage 3
L Franchising establishment of
foreign sales affiliates Joint Venture
O Licensing
F
Stage 2
C export by independent Export
O representatives
N
T
R Stage 1
O no regular export Indirect Export
L activities
Amount of Resources Committed - Foreign Market
Approaches to Foreign Market Entry - Uppsala model (Bartlett, Ghoshal & Beamish, 2008:9)
25. Ohmae's (1990) 5-stage globalisation model
(evolutionary)
1. Export orientated company (develop strong product base in home
market)
2. Establish overseas branches
3. Relocating production base to key markets
4. 'Insiderisation': transferring corporate functions from parent firm
HQ to new local environment
5. Complete global company: establishing global branding
(Ohmae, K. 1990, The Borderless World, Harper Business, New York.)
26. RISK & CONTROL IN MNE
(Doole & Lowe, 2004:220)
Cooperation
Strategies Direct Invest’
Joint ventures Own subsidiary
Strategic alliances Acquisition
Assembly
Direct Exporting
CONTROL
Distributors
Agents
Direct marketing/
E-commerce
Franchising
Management contracts
Indirect Exporting
Piggybacking
Trading companies
Export management companies
Domestic purchasing
RISK
27. PRESSURE OF GLOBAL
Globally
INTEGRATION:
Integrated
• Importance of Multinational Transnational Strategy
Product
Customers
Emphasis
• Presence of Multinational
Competitors Multifocal
• Investment Intensity Oriented
• Technology Intensity
• Pressure for Cost Reduction Area
• Universal Needs Emphasis
• Access to Raw Materials &
Energy
Locally
Responsive
PRESSURE OF LOCAL RESPONSIVENESS:
• Difference in Consumer Needs
• Difference in Distribution Channels
• Availability of Substitutes
• Market Structure
• Host Government Demands
(Prahalad and Doz see Dicken, 2003:Figure 7.12;220)
28. References
Bradley, F., 2005. International Marketing
Strategy. 5th ed. England: Pearson Education Ltd.
Bartlett, C., Ghoshal, S. & Beamish, P., 2008.
Transnatonal Management. 5th ed. New York:
McGraw-Hill/Irwin.
Hill, C., 2005. International Business. 5th ed. New
York: McGraw-Hill/Irwin.
Dicken, P., 2003. Global Shift. 4th ed. London:
SAGE Publications Ltd.
29. References (Continued)
Jeanet, J. P., Hennessey, H. D., 2004. Global
Marketing Strategies. 6th ed. USA: Houghton
Mifflin Company
Partneringalliances, 2008. Deliver the Value Your
Strategic Alliance Partner Needs. Available via:
uk.youtube.com Available at
<http://uk.youtube.com/watch?v=uk_Th-v7plg>
[Accessed : 28 November 2008]
Doole, I., Lowe, R., 2004. International Marketing
Strategy. 4th ed. London: Thomson Learning