ibe ndim eprg and strategy lecture 18
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intoduce you with the expansion strategyTRANSCRIPT
INTERNATIONAL BUSINESS INTERNATIONAL BUSINESS MANAGEMENTMANAGEMENT
Prof Soumitra MookherjeeLecture 18
EPRG APPROACH AND GLOBAL BUSINESS STRATEGY OPTIONS
EPRG Model
• Ethnocentric: everything is centered on the domestic market, and home country culture is perceived superior to that of others
• Polycentric: several important foreign markets exist that could be distinctly different.
• Regiocentric: the market is constituted by several large economic regions, where each economic zone is different from the other.
• Geocentric: the world is one large global market, where an uniform strategy is designed based on cultural similarities across various regions.
EPRG Model - CharacteristicsEthnocentric Polycentric Geocentric
Approach International operations are secondary
Each country is relatively independent
The world is one common market
Vision Centered on the domestic market
Each market is unique
Global vision of the world
Priority Searching for identical segments in foreign markets
Taking into consideration differences in foreign markets
Unifying differences in the world market
Planning center National headquarters
Subsidiary in each country
World headquarters
Structure International division
Division for each zone
Matrix structure
EPRG Model - CharacteristicsEthnocentric Polycentric Geocentric
Staff Citizens from the domestic market
Citizens from each market
Most qualified
Marketing strategy
Extension Adaptation Extension, Adaptation, Creation
Management style
Centralized Decentralized Integrated and interactive
Production Domestic Local Low-cost sources of supply
Partnerships Agent, licensing Joint-ventures Strategic alliances
Performance measures
Global market share
Local market share World market share
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Upstream Company’s Downstream Value Chains Own Value Chain Value Chains
Activities,Costs, &
Margins ofSuppliers
Buyer/ UserValueChains
Activities, Costs, &
Margins of Forward Channel
Allies andStrategic Partners
InternallyPerformedActivities,Costs, &Margins
PORTER: VALUE CHAIN SYSTEM
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The Value Chain System
• Comparing Costs All Along the Value Chain
• Suppliers Value Chain Influence Operational Costs
• Forward Channels Costs & Margins “Determine Prices”
• Activities reflect end user satisfaction.
Upstream Value Chain Internal Value Chain Downstream Value Chain
Activities, Costs & Margins of Suppliers
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PORTER: GENERIC STRATEGIES
Competitive Scope
Cost Uniqueness
Broad Focus
Narrow Focus
CostLeadership
Differentiation
Focused Cost Leadership
Focused Differentiation
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COST LEADERSHIP
• Produce/ Deliver Goods & Services at Lowest cost – with Acceptable features
“Cut costs Provide Excellent Service”
HOW:
1. Technology and process efficiency
2. Economies of scale and productivity
3. Eliminating unwarranted activities
• Effective Implementation of the Cost Leadership Strategy allows Firms to earn Supernormal Profits
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COST LEADERSHIP: EXAMPLES
Indigo Airlines:
Operating domestic and overseas flights at most economical price
GINGER/ NOVOTEL Group:
Budget Hotels with all modern amenities at affordable prices
LG/ SAMSUNG
Affordable FMCG products catering to needs of common mass
RELIANCE INDUSTRIES:
Mass scale production of high quality globally acceptable products at competitive prices
GLOBAL STRATEGY
The approach is to operate under the following framework:
1. Combination of geocentric and ethnocentric approach2. Centralization of operations3. Cost Leadership focus4. Standardized products and services – minor modifications if
absolutely essential5. Technology advancement for attaining Economies of scale6. Global headquarters takes critical business decisions7. Regional heads to coordinate with Global heads8. No major delegation of authority
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GLOBAL STRATEGY: EXAMPLES
BOEING/ AIRBUS:
All standardized variants of different aircrafts like A 320/ B 777/ 787 Dreamliner – but same models supplied to all airlines
CAPITAL GOODS/ MACHINERY/ PLUG ADAPTERS:
Plant and Machinery/ technology of global giants virtually standardized
MICROSOFT
ALL MS Office windows software products are standardized with minimum modifications
INTEL/ APPLE
Standardized Microchip Processors and complimentary to all PCS/ Laptops, etc I Pad, I Phone – distribution through own stores to maintain identity.
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• Unique Attributes and features of a product “ Customer Value”
• Differentiation Unique Needs Premium Price
• Ways of Differentiation
• Distinguish across various dimensions, functionality, performance
• Superior customer service and bonding
• Product Design, Features, Shape, Color
• Product Innovation and Durability
• State of the art Technology – Quality
DIFFERENTIATION STRATEGY
MULTIDOMESTIC STRATEGY
Objective is to operate under the following framework:
1. Combination of Polycentric and Regio-centric approach2. De-Centralization of operations3. Major emphasis on differentiation 4. Customized and adapted products and services – as per
cultural diversities, legal differences and variation in consumer behaviour, tastes and preferences
5. Country specific strategies are formulated and implemented for better impact
6. Regional headquarters takes critical business decisions7. Regional heads to coordinate with Global heads – but
there is delegation of authority
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MULTI-DOMESTIC DIFFERENTIATION: EXAMPLESMC DONALDS/ PIZZA HUT/ KFC:
International franchisee – flavours and tastes customized to suit local preferences
e.g. Tikka Masala flavour, all vegetarian outlets,
COKE/ PEPSI:
Most powerful FMCG brands –flavours, tastes, packaging different across various regions
MARUTI SUZUKI/ HYUNDAI:
Worldwide popular brands of vehicles – differentiation features, design and
customer service
NESTLE/ UNILEVER/ P&G
Powerful global brands making toiletries, personal care products, Dairy products – highly customized and adapted to suit local cultures, tastes and preferences.
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Sources of Competitive Advantage
RESOURCE STRENGTH:
Access to information, cheap skilled labour, cheap capital, supplies, raw materials,
ASSET STRENGTH:
Well established Brand, Patents, Proprietary technology, distribution network, etc
COMPETENCIES:
Superior productivity, Technology, business processes, lead time management, information management and technical know how, etc
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STRATEGY OPTIONS: GLOBAL OR MULTI-DOMESTIC
1. EXISTENCE OF SOURCES OF EXTERNAL AUTHORITY (EA)
When the degree of external control is HIGH due to changes in tariffs and taxation, regulations protecting local sectors, government controlled, etc –
Then the firm’s ability to enforce cost leadership strategies through aggressive pricing and efficiency is limited:
In such cases firms have the following options:
1. Operate in countries having low degree of control
2. Firms switch towards adopting differentiation based strategies comprising improvement in design, quality, features, after sales service, aggressive Brand Promotion, customization, etc
3. Alternatively, operate in your own country and adopt and execute the “ GLOBAL STRATEGY”
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STRATEGY OPTIONS: GLOBAL OR MULTI-DOMESTIC
2. EXCHANGE RATE VOLATILITY (ERV)
The risks and uncertainties associated with exchange rate fluctuations are prominent in countries having floating rate systems
Any sharp currency appreciation would make exports less competitive and export growth may suffer and profit margins may decline.
In such cases firms have the following options:
1. Operate in countries having fixed exchange rates and / or low exchange rate risks
2. Firms switch towards adopting non price differentiation based strategies to hedge foreign currency risks. This is indicative of “MULTI-DOMESTIC STRATEGY” to reduce risks associated with unfavorable exchange rate movements.
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GLOBAL STRATEGY FRAMEWORK
GLOBAL AMBITION
GLOBAL POSITIONINGGLOBAL BUSINESS
SYSTEMS
GLOBAL ORGANIZATION
Relative importance of regions and countries in terms of size, assets, resources
• Choice of Regions• Value Proposition Global or Multi-Domestic
• Invest in resources, assets, to create a global value chain
• Develop through M & As
• Global Structure• Global Processes• Global HRM and Coordination