international business strategic management market entry modes choice
DESCRIPTION
THIS PRESENTATION OF INTERNATIONAL BUSINESS CONSIST ON DIFFERENT STRATEGIES LIKE BUSINESS, CORPORATE, FUNCTIONAL. IT ALSO COVERS FOREIGN MARKET ENTRY MODES.TRANSCRIPT
International Business Strategic Management
Faisal Shahzad
MBA (Marketing)
MSc in Economics and Business Administration
VAASA University Finland
Practice Lecturer
Helsinki Business College
Helsinki, Finland.
00358 440778692
email: [email protected]/[email protected]
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Learning Outcomes
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Learning Outcomes
What is International Business?
Why we study IB?
What is Strategy?
Drivers of Internationalisation
Geographic Sources of Advantage
Location Advantage: Porter’s Diamond
PESTEL Anaylsis
CAGE Framework
How many Strategic Alternatives available for MNCs?
Market Entry Modes and selection
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What is International Business?
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What is International Business?
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Why Study International Business?
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Why Study International Business?
In today’s globalizing world, firms are increasing looking towards other region of the world to trade in.
What are the steps taken by the exectuives of these firms before deciding on which market to enter?
How do they make sure their journey a successful one?
Organization which you will join might have international operations.
If one day you start your own business and may you will have to buy material foreign-made.
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What is Strategy?
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“A plan of action or policy designed to achieve a major or overall aim.”
The essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match.
What is Strategy?
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International vs. Global Strategy
International strategy refers to a range of options for operating outside an organization’s country of origin.
Global strategy is only one kind of international strategy, it involves high coordination of extensive activities dispersed geographically in many countries around the world.
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International Strategy Framework
Internationalization
Drivers
Geographic
Advantages
Market Selection
Mode of
Entry
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Drivers of Internationalization
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Market Drivers Similar customer needs
Global customers
Transferable marketing
Cost Drivers Scale economies
Country-specific differences
Favorable logistics
Government drivers Trade policies
Technical standards
Host government policies
Competitive drivers Interdependence between countries
Competitors global strategies
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Geographic Source of Advantage
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Firm strategy,
structure and rivalry
Demand conditions
Related and supporting industries
Factor conditions
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Government
Chance
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Location Advantage: Porter's Diamond
Demand Conditions
1) The nature of the domestic customers can become a source of competitive advantage.
2) Dealing with sophisticated and demanding customers at home helps train a company to be effective in foreign markets.
These refer to the “factors of production” that go into making a product or service (raw material,
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Italian ceramic industry after World War second, There was post war housing boom. Consumers wanted cool floors due to hot climate conditions.
Japanese knowledgeable consumers of electric and electronics products made that industry innovative and grow tremendously.
French wine industry, French people are sophisticated wine consumers which forced firms to produce high quality wine.
Sophisticated local customers in France and Italy have helped keep their local fashion industries at the leading edge for many decades.
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Diamond Conditions Example
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Factor Conditions
These refer to the “factors of production” that go into making a product or service (raw material, labor an land). There are two types of factors.
Basic Factors: Natural resources, climate, demographics
Advanced Factors: Communication infrastructure, skilled labor, research and development facility etc.
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Related and supporting industries
•Local “clusters” of related and mutually supporting industries can be an
important source of competitive advantage.
•These are often regionally based and making personal interaction easier.
For example: Leather footwear industry, leatherworking machinery
industry and the design services which connect them together in the same
regional cluster to each others mutual benefit.
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Firm strategy, structure and rivalry
The characteristics strategies, industry structures and rivalries in different countries can also be bases of advantage.
German companies strategy of investing in technical excellence gives them a characteristics advantage in engineering industries and creates large pool of expertise.
A competitive local industry structure is also helpful, like swis pharmaceuticals industry became strong in part because each company had to compete with several strong local rivals.
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Government and Chance
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International Strategies
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Global Strategy
The firm views the world as a single marketplace and its primary goal is to create standardized goods and services that will address the needs of customers worldwide.
I.Strategies form at HQ
II.Economies of Scale and Scope
III.Global Advertising and Marketing Campaigns
The firm views the world as a single marketplace and its primary goal is to create standardized goods and services that will address the needs of customers worldwide.
Strategies form at HQ
Economies of Scale and Scope
Global Advertising and Marketing Campaigns
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Home Replication Strategy
In this approach, a firm utilize the core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign markets that it centers.
Example: Mercedes-Benz relies on its well-known brand name and its reputation for building well engineered, luxurious cars capable of traveling safely at very high speeds.
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Multidomestic Strategy
A multi-domestic corporations vies itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market. In addition, each of these subsidiaries is free to customize its products, its marketing campaign, and its operations techniques to best meet the needs of its local differences among national market.
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Transnational Strategy
The transnational corporations attempt to combine the benefits of global scale efficiencies, such as those pursued by a global corporations, with the benefits and advantage of local responsiveness, which is the goal of multi domestic corporations.
Example: IKEA
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The Staged International Expansion Model
The Staged International Expansion model proposes a sequential process
whereby companies gradually increase their commitment to newly entered
markets, as they build market knowledge and capabilities.
However, the gradualism of staged international expansion model is now
challenged by two phenomena:
1. Born global firms
2. Emerging country multinationals
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Market Selection and Entry
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PESTEL Framework
Political
Economic
Social
Legal
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Cultural
Distance
Administrative
Distance
Geographical
Distance Economic
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CAGE Framework
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Market Entry Modes
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Choosing a Mode of Entry
Decision Factors Ownership Advantage
Location Advantage
Internalization Advantage
Other Factors
exporting Internatioanl
licensing
International
frenchising Specialized modes
Foreign direct
investment
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Market Entry Modes
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Export
Exporting offers several advantages and disadvantages to the firms.
Eporting is the process of sending goods or services from
one country to other countries for use or sale there.
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Increase sales and profits
Gain global market share
Eploit corporate technology and know-how
Extend the sales potential of existing products
Stabilize seasonal market fluctuations
Enhance potential for corporate expansion
Gain information about foreign market competition
Incur added administrative cost
Modify your product or packaging
Allocate personal for travel
Payments delay
Vulnerability to tariffs and NTBs
Potential conflicts with distributors
Export Advantages Disadvantages
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Modes of Entry Licensing
Generally, a licensing agreement involves the granting of rights to intangible property, such as patents, copyrights, trademarks, or producers. An agreement is made between the owner (licensor) of the property and a user of (licensee) to specify the terms of use and payment terms.
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1) Specifying the agreement boundaries
(Heineken is exclusively licensed to manufacturer and sell Pepsi-Cola in the Netherlands).
2) Determining Compensation
(royalty is usually paid to the licensor in the form of flat fee, percentage of the unit sold).
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Basic Issues in Licensing
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Basic Issues in Licensing
3) Establishing rights, privileges and constraints
(if a licensee began using inferior material, if licensee sell information, technology, production method to other firm).
4) Specifying the agreement duration
(the licensee built Walt Disney land insisted on a 100-year licensing agreement with the Walt Disney Company).
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Licensing Advantages Disadvantages
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Franchising
A fenchising agreement allows an independent entrepreneur or organization called the franchisee, to operate a business under the name of another, called the franchisor, in return for a fee.
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Franchising
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Foreign Direct Investment
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Foreign Direct Investment
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Dunning’s Eclectic Theory
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The Greenfield Strategy
The Greenfield strategy involves starting a new operation from scratch. The firm buy or lease land, constructs new facilities, hires and transfers in managers and employees, and then launches the new operations. Example: Toyota production facility in India represents greenfield investment, Nissan factory in Sunderland England.
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The Greenfield Strategy Advantages
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The Greenfield Strategy Disadvantages
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The Acquisition strategy
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The Acquisition strategy
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Joint Ventures
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Joint Ventures
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Joint Ventures
Advantages
I. JV provides a means to spread large capital needs over a number of parties.
II.Partners can bring specific skills and know-how to the partnership.
III.Succesful joint ventures synergy.
Disadvantges
Think
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Scope of Strategic Alliances
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• Production Alliances: is a functional alliance in which two or more firms each manufacture products or provide services in shared or common facility.
Example NUMMI joint venture between Toyota and GM is housed in a former GM assembly plant in California, which company had shut down.
• Marketing Alliances: is a functional alliance in which two or more firms share marketing services or expertise. In most cases. One partner introduces its products or services into a market in which the other partner already has a presence.
Example: U.S toymaker Mattel and its Japanese rival Bandai established a strategic marketing alliance in 1999. Bandai agreed to distribute Mattel products like Barbie dolls, Hot wheels toys in Japan while Mattel agreed to market Bandai’s Power Rangers and Digimon in Latin America.
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Scope of Strategic Alliances
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Financial Alliances: is a functional alliance of firms that want to reduce the financial risk associated with a project. May be one partner contribute the bulk of the financing while the other partner or partners provide special expertise or makes other kinds of contribution partially offset its lack of financial investment.
Example: The strategic alliance between Boeing and its three Japanese partners was created primarily for financial purposes.
Research and Development Alliances: In this alliance partners agree to undertake joint research to develop new products or services.
Example: Alliance among Intel, Micron Technology, Samsung, Hyundai, NEC, and Siemens to develop the next generation of DRAM chips.
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Scope of Strategic Alliances
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Selection of Partners
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Pitfalls of Strategic Alliances
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Any Questions
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