Business Environment

1. Lesson 1
Types of Business
- Local, national, international
and global businesses

2. Strategy:
“the action managers take to attain the
goals of a firm”
• General purpose: maximize/make profit
• Differentiate products, increase price: add
value, features, quality, service
• Achieve low cost
• Key means: allocation of scarce resources to
attain goals

3. Activity Value Chain
Firm as a chain of discrete value creating
activities
• Primary
• upstream activities, manufacturing
• downstream activities: marketing, sales, after
sales service
• Support
• infrastructure (general and administrative)
• human resources
• research and development

5. Global Expansion Benefits
Earn greater return from distinctive skills, core competences
• Inimitable or difficult to imitate skills in value chain
Realize location economies
• Choice of FDI location
• Create multinational network of activities (global web)
Realize greater experience curve economies, which reduce the cost of
value creation
• Learning effects, economies of scale
B
Accumulated output
Experience curve
A
Unit costs

6. Pressures for Global Integration
& Local Responsiveness
High
Local
Responsiveness
Pressures
Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host government needs/requirements
Ball bearings,
wheat
HighLow
Low
Cost Reduction
(Global Integration)
Pressures Cosmetics, food,
household goods

7. Strategic Choice
High
HighLow
Low
Local Responsiveness Pressures
“Global”
Strategy
“Transnational”
Strategy
“Multidomestic”
Strategy
“International”
Strategy
Cost Reduction
(Global Integration)
Pressures

8. Multidomestic MNC
Decentralized Federation - Many key assets, responsibilities
and decisions localized
Personal Control - Informal HQ-Sub relationship, simple financial controls
Multidomestic Mentality - Management sees overseas operations as
portfolio of independent businesses
UK Chile
India
Japan
USA
HK
Mexico

9. International MNC
Coordinated Federation - Key assets, responsibilities decisions localized
Administrative Control - Centralized HQ control, formal planning and
control, tight HQ-Sub linkage
International Mentality - Management sees overseas operations as
appendages to a domestic operation
UK Chile
India
Japan
USA
HK
Mexico

10. Global MNC
UK Chile
India
Japan
USA
Centralized Hub - Most strategic assets, resources, responsibilities
and decisions centralized
Operational Control - Tight HQ control of decisions, resources, information
Global Mentality - Management sees overseas operations as delivery
pipelines to a unified global market
HK
Mexico

11. Transnational MNC
UK Chile
IndiaJapan
USA
Networked Organization - Distributed, specialized resources and capabilities
Interdependent Units - large flows of components, products, resources,
people, and information
Transnational Mentality - Complex process of coordination and
cooperation in an environment of shared decision making
HK
Mexico

13. International Strategic Alliances
Cooperative agreements between competitors from different
countries
• Advantages
• Facilitate entry into a foreign country
• Allow fixed costs of new products and processes to be shared
• Bring together complementary skills and assets
• Help establish industry standards in technology
• Allow reduction of operating costs,e.g., shared training,
purchasing
• Disadvantages
• Give competitors a low cost route to new technology / markets
• Disproportional benefit accrual to partners

14. Making alliances work which partner?
A suitable partner
• Helps achieve strategic goals
• Adds needed, valuable capabilities
• Shares the firm’s vision for purpose of the alliance
• Is not likely to exploit the alliance to its own ends
Steps to select a partner
• Thorough background check via public sources
• Advice from third parties who have personal experience
with likely partner(s)
• A lot of face-to-face time with likely partner(s) in their
environment

15. Making alliances work - What Structure?
Protect technology/know-how that is not intended to
be transferred
Draw a solid contract with safeguards against
opportunism
Achieve equitable gain through agreed swaps of
technology the other wants
Seek creditable, clearly articulated commitment to
partner “behavior” a-priori

16. Making alliances work - How to manage?
Show sensitivity to cultural differences that
explain different managerial styles
Build trust
• Set up framework for formal and informal face-to-
face meetings to create a common value system
• Build informal network of personal relationships
Learn from partners
• Apply the knowledge within your own organization
• Brief your employees on partner strengths