external triggers external triggers to the internationalization process external triggers to the...
TRANSCRIPT
External triggersExternal triggersExternal triggers to External triggers to
the internationalization the internationalization processprocess
Meta-level development in Meta-level development in the world economythe world economy
PEST analysisPEST analysisInternationalization of Internationalization of
industries: globalisation vs. industries: globalisation vs. localisationlocalisation (4C) (4C)Bi-polarisationBi-polarisation
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 22
External triggers to the External triggers to the internationalization internationalization
processprocessDriving forces toward globalization - opposite forces => tensions
Current phase => Triggers may create conditions => Discontinuity => Next phase
Movement: bidirectional
increasing int’l exposure
decreasing
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 33
External triggersExternal triggers
INTERNATIONALISATIONINTERNATIONALISATIONMarket
penetration
Geographical expansion
Product development
Organizational dynamics
Vision mindset
Meta trendsIndustry
competition
RETRENCHMENT*RETRENCHMENT*
Internal triggersInternal triggers
Product extension
Restricted national
market scope
Figure 2.1. Developing an international business strategy
Intern’l business
development
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 44
External triggers
Current phase
DiscontinuityDiscontinuity
New international strategic thrust
Next phase
Internal triggers
Figure 3.1. External and internal triggers to a stage change
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 55
Three levels:Three levels:– meta levelmeta level– industry levelindustry level– FirmFirm--specific levelspecific level
InterrelatednessInterrelatedness!!!!!!
Meta level:Meta level: broad trends, collectively help to broad trends, collectively help to
shape competitive environmentshape competitive environment Question: Question: how they relate to how they relate to
individual industries and individual industries and competititorscompetititors
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 66
External triggers
Meta levelMeta level
World trade
PEST analysis
Industry level
Globalisation v
localisation
Firm level
Bi-
polarisation
Figure 3.2. External triggers at the meta, industry and firm-specific levels
TRINITYTRINITY
External triggersExternal triggersExternal triggers to the External triggers to the
internationalization processinternationalization process
Meta-level Meta-level development in the development in the
world economyworld economyPEST analysisPEST analysis
Internationalization of Internationalization of industries: globalisation vs. industries: globalisation vs.
localisationlocalisationBi-polarisationBi-polarisation
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 88
Meta-level development Meta-level development in the world economyin the world economy
the “Triad”the “Triad” interblock tradeinterblock tradedirect investmentdirect investmentdynamic adjustmentdynamic adjustment
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 99
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1010
TriadTriad 1/5 of global population, 4/5 of world 1/5 of global population, 4/5 of world
output (GNP)output (GNP) more manufacturing/service divisions more manufacturing/service divisions nationality of companies: outdatednationality of companies: outdated national government can not obstruct national government can not obstruct
or impedeor impede rraising import penetration: aising import penetration:
interlinked natureinterlinked nature
USA import:USA import:– 1970: 4.1% GNP1970: 4.1% GNP– 1980: 9.1 % GNP1980: 9.1 % GNP– 1990: over 18%1990: over 18%
Main competitors for indigenous Main competitors for indigenous firms are increasingly to be firms are increasingly to be
foreign!foreign!
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1111
Global marktes
Regionals markets
Regionals markets
Regionals markets
National markets
Capitol marketCapitol market
Conflicts of national Conflicts of national policiespolicies
Goods, servicesGoods, services
Integration, Integration, harmonization and harmonization and
protectionist regional protectionist regional policiespolicies
Labor marketsLabor markets
National employment, National employment,
training and fiscal policiestraining and fiscal policies
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1212
35% 740 m
Western Europe 28% 350 m
NAFTA 30% 370 m
Japan, Australia &‘Tigers’ 20% 400m
Africa, Middle East, Indian subcontinent
6% 1700m
34% 760m 25% 2300mThe
‘Triad’
Central & Eastern Europe7%; 390m
South & Central America4%; 390m
China, other Asian-Pacificdeveloping 5%; 1900 m
Figure 3.3. The ‘Triad’ and the world economy, 1991: percentage of world GNP; population in millions
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1313
NAFTA
South & Central America
Western Europe
Central & Eastern Europe
Japan and ‘Tiger’ economies
China & Asia Pacific
Africa, Middle East &India
28%
40%
34%
22%
68%
26%
47%
2001 1991
0 2000 4000 6000 8000 10,000Figure 3.4. Forecast growth of world ‘Triad’ markets, 1991-2001: levels of GNP (billion
USD) and estimated percentage changes over the period {World Bank]
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1414
1995: 1995: Uruguay Round of the GATTUruguay Round of the GATT: significant : significant reduction in the trade barriersreduction in the trade barriers cuts in tarifscuts in tarifs bringing in farm products, textiles, servicesbringing in farm products, textiles, services intellectual property rightsintellectual property rights conditions: when a state allowed imposing trade barriersconditions: when a state allowed imposing trade barriers
World trade growth > world outcome=>World trade growth > world outcome=>
XXI. CenturyXXI. Century: interlinked economy is likely grow faster : interlinked economy is likely grow faster => international competition is increasing more => international competition is increasing more quickly than output growsquickly than output grows
EU, NAFTA: large unified regional trading areaEU, NAFTA: large unified regional trading area
Liberalization promoted Liberalization promoted
inter- inter- and and
intra-block trade!intra-block trade!
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1515
Europe
Intra-Europe 1214.0 $bn (35,4%)
America Asia
Intra-Americas 270.4 $bn (7.7%)
Intra-Asia 413.5 $bn (11.8%)236.4 $bn (6.7%)
174,7 $bn (4.9%)
152.7 $bn(4.4%)
153.6 $bn (4.4%)
129.3 $bn (3.7%)
Key: = Exports to
Figure 3.5. Projected merchandise trade in US$ billion and as a percentage of world trade for the year 2005 [GATT Report]
184.8 $bn (5.3%)
Others: 14.9%
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1616
$ bi
llio
n100
80
60
40
20
0
-20
-40
-60
-22
-7
54
1987
-25-33
-5
63
-24
1988
-34
-8
63
-21
-51
-18
87
-18
1989 1995
Europe USA Japan Rest of world
Figure 3.6. Trade balance of world electronics industry: surplus/deficit in US$ billion
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1717
Direct investmentsDirect investments raising exchange rates (Japan, Germany)raising exchange rates (Japan, Germany) hard to raise productivityhard to raise productivity
Foreign assets: Japan $514 bl, Germany $300bl Foreign assets: Japan $514 bl, Germany $300bl (1992)(1992)
World trade flows increasingly reflect the World trade flows increasingly reflect the locational decisionslocational decisions of international of international
competitors and not just the competitive competitors and not just the competitive position of indigenous nationally owned position of indigenous nationally owned
companies!companies!…never has an economy passed so quickly as Japan from non-
industrialised backwater, through industrial giant, and now towards threatened industrial dinosaur - all in one generation.*
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1818
Dynamic adjustmentDynamic adjustment success eventually brings attendant success eventually brings attendant
difficulties (Japan, Germany)difficulties (Japan, Germany) facing structural challenges: raising affluence facing structural challenges: raising affluence
- erroding cost bases- erroding cost bases home manufacturing base: less and less home manufacturing base: less and less
competitivecompetitive loss of export sales and employment - loss of export sales and employment -
adjustments (time leg)adjustments (time leg)
Undermines the success of the Undermines the success of the previously rapidly growing previously rapidly growing economies =>economies =>
Enables new countries to become Enables new countries to become preferred production base!preferred production base! Trade protection: only a temporary solutionTrade protection: only a temporary solution Protection removes the competitive pressureProtection removes the competitive pressure Protection removed: adjustment more Protection removed: adjustment more
dramatic!!*dramatic!!*
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 1919
The dynamics of the TRIAD world economy create The dynamics of the TRIAD world economy create instability and change, but there can be no such thing instability and change, but there can be no such thing as absolute winners or losers.as absolute winners or losers.
•Winning becomes increasingly expensive as wages and currencies are adjusted upwards.
•Loser economies, by contrast, are able to rejuvenate in the long term since an unemployed workforce is available at reasonable cost and backed by a week currency.
Time legs to this process ensure that the adjustment Time legs to this process ensure that the adjustment process is slow, with changes in political, technological process is slow, with changes in political, technological and social factors and social factors •either reinforcing the economic adjustment process either reinforcing the economic adjustment process •or retarding it.*or retarding it.*
External triggersExternal triggersExternal triggers to the External triggers to the
internationalization internationalization processprocess
Meta-level development Meta-level development in the world economyin the world economyPEST analysisPEST analysis
Internationalization of Internationalization of industries: globalisation industries: globalisation
vs. localisationvs. localisationBi-polarisationBi-polarisation
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2121
PEST analysisPEST analysis
– PPolitical-olitical-EEconomic driversconomic drivers– SSocial (lifestyle) changesocial (lifestyle) changes– TTechnological developmentechnological development
– Linking Linking PESTPEST and meta-level and meta-level changeschanges
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2222
PPolitical-olitical-EEconomic driversconomic drivers--11 Indian car component industryIndian car component industry
Indian companies: equipment suppliersMain advantages: low cost,
lax environment controlslong engineering tradition
Cost effective country for hothot and dirty dirty operations:
forging of heavy componentsmanual assembly
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2323
PPolitical-olitical-EEconomic driversconomic drivers--22
Disadvantage: adequate infrastructure adequate infrastructure reputation for poor qualityreputation for poor quality
Rejected as original equipment manufacturers => Rejected as original equipment manufacturers => only spare parts => only spare parts => low cost, low quality spares (half price) => low cost, low quality spares (half price) => undermines to supply original equipmentundermines to supply original equipment
LOW COST IS AN INSUFFICIENT LOW COST IS AN INSUFFICIENT COMPETITIVE BASE!COMPETITIVE BASE!
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2424
political forces: brought political forces: brought liberalizationliberalization
economic forces: responsible for economic forces: responsible for many of underlying dynamicsmany of underlying dynamics– cost differencialscost differencials– exchange ratesexchange rates– must recognise all inputsmust recognise all inputs– customers: not looking for low cost customers: not looking for low cost
at the expense of qualityat the expense of quality worldwide shift in economic worldwide shift in economic location: attributed to labor cost location: attributed to labor cost competitiveness; but:competitiveness; but:– productivityproductivity– qualityquality
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2525
Germany
Japan
USA
Italy
France
UK
Spain
Mexico
0.00 10.00 20.00 30.00
25.10
24.89
16.98
16.32
15.30
13.74
12.66
2.10
Labour costs per hour/US$
Figure 3.7. World component supplies, labour costs per hour (US$)
seats
exhausts
brakes
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2626
Germany
UK
Italy
USA
Japan
France
Spain
Mexico
0 20 40 60 80 100
100
60
51
50
47
40
27
12
Figure 3.8. Index labour cost per unit of output (US$)
Germany: 100%
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2727
Home based productionHome based production => => ccontinuing appreciation in ontinuing appreciation in the country’s exchange ratethe country’s exchange rate–drive down costsdrive down costs– locate production cross-border locate production cross-border – increase cross-border increase cross-border productionproduction
Otherwise: squeezed out of Otherwise: squeezed out of international marketsinternational markets
The location of low cost The location of low cost economic facilities is economic facilities is constantly changing!constantly changing!
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2828
SANRITSU ELECTRICSANRITSU ELECTRIC
(Tokushima plant, Shikoku island – currently: idle)
Sanyo Electric’ supplier for 26 years (CD, radio, casette player)
1993 August: no longer ordering
New source: Singapur!
October: Tokushima run out of orders!
Reason: yen’s sharp appreciation
Plus:- product prices fell- intensified competition
Japanese firms with higher cost => increasingly Japanese firms with higher cost => increasingly source products oversees!source products oversees!
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 2929
Entry of KIA Motors into the US car marketEntry of KIA Motors into the US car market1994: replicate Japanese entry strategy in a high competitive market
- under-price products- similar quality- superior levels of standard equipments
Japanese producers: increase price (response to $/yen rate) => gap appeared at the bottom end
Toyota Corolla, Honda Civic: from $12.000Kia Sephia: $8.495
KIA strategy: replace Japanese models in the low KIA strategy: replace Japanese models in the low price segmentsprice segments
Japanese manufacturers: •unable to match the lower cost base of new entrants•unable to give premium price at luxory cars•increasingly caught in the middle
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 3030
SSocial (lifestyle) changesocial (lifestyle) changesPowerful influence on customer choicePowerful influence on customer choice World is becoming a smaller placeWorld is becoming a smaller place
– reduced costs of int’l travelreduced costs of int’l travel– enhanced communication: information on enhanced communication: information on
productsproducts– worldwide homogeneity of consumers worldwide homogeneity of consumers
preferencepreference– convergence of customer requirements convergence of customer requirements
(cameras, jeans, soft drinks)(cameras, jeans, soft drinks) Continuing diversity: opposite directionsContinuing diversity: opposite directions
– cultural and language identitiescultural and language identities– national states, separate groups: national states, separate groups:
differences be recognizeddifferences be recognized
Lifestyle trends: critical external triggermay operate either •to accelerate the convergenceconvergence of the global economyor•continue to promote diversitydiversity
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 3131
NISSANNISSAN
Manufacturing: Japan,Europe, North America
Strategy: need to penetrate successfully Triad markets
•customers in each Triad markets: vastly different needs
•sub-markets: also
Nissan’s believe: no universal world car!
•Basic models: meet some of the needs of each => to halve
•3/4 of sales: designed for specific markets
No averaging across markets to reach a compromise design!
- looks at Triad region by region- identifies each market’s dominant
requirements
‘lead countrylead country’ model => tailored to distinct needs of the dominant national markets
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 3232
TTechnological developmentechnological developmentinformation technologyinformation technology
data collation, analysis, data collation, analysis, transfertransfer
coordinate activities from coordinate activities from diffuse locationdiffuse location
e-trade, e-financee-trade, e-financecommunicationcommunication
=> linking stock markets=> linking stock markets=> linking financial => linking financial systemssystems
=> finance company => finance company operationsoperations
travel and transporttravel and transport
Promotes changes, adoption to changesPromotes changes, adoption to changessatellite technology more quickly, cheaply pan-country media, pan-continent media
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 3333
Developing technologiesDeveloping technologies
Gene splicingGene splicingbiotechnology (USA 70’s), pharmaceutical industry
Magnetic resonance imaging (MRI)Magnetic resonance imaging (MRI)body scanners showing images + biochemical reactions, medical equipment industry
High-temperature superconductivityHigh-temperature superconductivity80’s, new ceramic materials lose electrical resistance at workable temperature
Personal computersPersonal computers continuing advances: portable PCs rapid growth (Atari => Psion)
3-Externel triggers-a 34 /3-Externel triggers-a 34 / 3434
Neutral networksNeutral networks military applications (military applications (InternetInternet), ),
industrial and financial sector: industrial and financial sector: recognition, forecastingrecognition, forecasting
Communication satellitesCommunication satellites continuing growth and advancement continuing growth and advancement
((Berlin Olimpic Games => Telstar => Berlin Olimpic Games => Telstar => moon “landing’ => Sidney Olmoon “landing’ => Sidney Olyympic mpic GamesGames))