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International Strategic Management
Motives of Globalization
Strategic Objectives & Sources of Competitive Advantages
Strategic Orientation of International Firms
Strategies for International Firms
International StrategicBusiness Management Hasan FurqanHochschule Furtwangen University, Furtwangen Germany SS 2012
Agenda Strategic Management Strategic Formulation Porter Five Forces International Strategic Management Motives of Globalization Strategic Objectives & Sources of Competitive Advantages Strategic Orientation of International Firms Strategies for International Firms Conclusion
International Strategic Business ManagementCharles W.L.Hill “An international business is; any firm that engages ininternational trade and investment….export or import productsfrom other countries.”Other definitions suggests• “a business whose activities involve the crossing of national boundaries”• “any commercial, industrial or professional endeavor involving two or more nations”• “any business transaction that involve two or more countries”
International Strategic Business Management• Why Firms Globalize:
Why Firms Globalize:• Market Seeking Motives: o Increase Market Share: e.g. McDonalds, Pizza Hut expanded…• Cost Reduction Motives: o Labor Cost e.g. China, India,… o Transportation Cost o Tax Exemptions e.g. Intel in Costa Rica & Mercedes in Albana. o Environment Protection Laws e.g. Africa, Asia, Latin America.
Why Firms Globalize:• Strategic Motives: o Risk Diversion e.g. Auto parts are produced in USA, Mexico, India, Indonesia etc. o Vertical Integration e.g. Oil exploration companies into Oil refinery… o Exporting Facility e.g. Textile Manufacturers in Bangladesh• Other Motives o Power & Prestige o Exploitation of specific advantages o Synergy o International Competition
Strategic Objective & Source of Competitive Advantage• Sumantra Ghoshal presented strategic objectives of an international firm and the sources of developing competitive advantage. Global Strategic Objectives: 1. Achieving Efficiency o carrying out all value chain activities to a required quality at lowest cost 2. Managing Risk o like exchange rate risks, political risks, raw material sourcing risks etc. 3. Innovating, learning and adapting o learn from the different societies, culture and markets.
Strategic Objective & Source of Competitive AdvantageGlobal Competitive Advantages:1. National Differences o e.g. low wage rate in different countries, relative cost of capital, tax regimes2. Scale Economies o to operate at the optimal economic scale for minimum unit cost3. Scope Economies o use of global brands names like Coca Cola or McDonald’s.
India Dell Coca ColaToyota India Japan Hewlett Lilly &U.S.A Packard Ranbaxy
Strategic Orientation of International Firms High Global Orientation Transnational Orientation (Chemicals, Heavy (Pharmaceuticals, Metals) Telecommunications) GlobalIntegration &Coordination Pressure International Multi-domestic Orientation (Cement, Orientation Fabric Mills) Low Low High Local Responsiveness Pressure
Strategic Orientation of International Firms1-International Orientation:• no pressure to be globally integrated,• cost effective or locally responsive• Domestic customers are its backbone• sell outside when o approached by an international customer o in times of recession, o when overcapacity looms• metal industries, cement, machinery, paper, textile, printing and publishing .
Strategic Orientation of International Firms2-Global Orientation:• Companies search for o commonality of consumer tastes and preferences, o market segments o life style among different countries.• Companies with global strategy o have standardized products o strong brand names. o have same strategies with little regional and cultural modifications.• e.g. Gillette, Coca-Cola or Johnson and Johnson’s
Strategic Orientation of International Firms3-Multi-domestic Orientation• Strategic approach that attacks each market individually• Companies adopt o Decentralize approach o products, strategies and o management practices country by country.• Commonly used by the European multinational firms like Unilever• Industries like beverages, food, rubber, household appliances and tobacco.
Strategic Orientation of International Firms4-Transnational Orientation:• Firm achieve both globalefficiency and local responsiveness.• Companies attempt to be responsive o to host country markets through o adaption of products, marketing strategies and o management practices to suit local conditions.• Pharmaceutical, telecommunication, financial services, computers and automobiles companies
Competitive Strategies for Firms in Foreign Markets High Wholly Owned Joint Venture Foreign Branch Foreign SubsidiaryProduct Diversity Licensing, Contract Joint Venture Foreign Branch Manufacturing, Franchising Licensing, Contract Export Joint Venture Manufacturing, Low Franchising Low High Market Complexity
Competitive Strategies for Firms in Foreign Markets1-Exporting:• sending a firm’s product or services to international destinations.• company low in market complexity and product diversity…• Usually require minimal capital investment• Two methods of export management1. Indirect Exporting2. Direct Exporting
Competitive Strategies for Firms in Foreign MarketsIndirect Exporting:• Products are sent overseas without the firm’s ultimate involvement.• Small and medium size companiesDirect Exporting:• company internationalizes the export function• takes responsibility of selling its products• without an intermediary, to• an importer located in a market abroad.• Large size companiesExample: A Taiwanese company, Gigabyte…..
Competitive Strategies for Firms in Foreign Markets2-Licensing/Contract Manufacturing:• Licensing involve the transfer of some industrial property right from the licensor to a licensee.• Most tend to be patents, trademarks, e.g. beer manufacturers• Another licensee strategy is o to contract the manufacturing of a product line to a foreign company e.g. Nike,• There are two main problems in licensing o foreign partner can become a competitor o little control over the manufacturer and marketing
Competitive Strategies for Firms in Foreign Markets3-Franchising• It requires the transfer of o technology, business systems, brand name, trademark, marketing strategies and other property rights• Around 50% of all major retail businesses are franchisee.• Coca-Cola and Pepsi Co send the syrup,• e.g. Marriot, Holiday Inn, Hilton, McDonald’s, Burger King, Hertz• Disadvantage is that a franchisee may spoil the franchisor’s image…
Competitive Strategies for Firms in Foreign Markets4-Joint Ventures:• an arrangement in which firms from different nations o pool a portion of their respective resources o within a common, legal organization.• Established to jointly develop a new technology or to obtain resources like exploration of oil and gas.• More permanent cooperative relationships than export or contract manufacturing• it begins with a mutually agreeable pooling of o capital, production or marketing equipment, o patents, trademarks, or management expertise.
Competitive Strategies for Firms in Foreign Markets5-Foreign Branches:• An extension of the company in its foreign market.• Directly responsible for o sales, customer service, physical distribution o any other operational duties assigned to it.• It has some local managers in middle and upper level positions.• most likely be outside the legal jurisdiction of the firm• License for operations may be of short duration.
Competitive Strategies for Firms in Foreign Markets6-Wholly Owned Subsidiaries:• Companies that are willing and able to o make highest investment committed to the foreign market.• Complex, potentially costly, but above average return.• Firm maintains control over o technology, marketing and distribution of the product.• The firm must build new o manufacturing plants, o distribution networks o marketing strategies to compete in the new markets.
ConclusionTo enter in a foreign market a company must1. Identify its objectives2. Preliminary country screening,3. Identify the opportunities and constraints4. Identify key success factors5. Analyze strengths and weakness6. Optimal way to enter, How?7. Compare and rank the target countries.