International Strategy & International Strategy & ManagementManagement

“Home and away games”

International Strategy

What is a global business?

What determines global business success?

How do firms enter global markets?

How does a firm manage a global operation?

What is a Global Business?What is a Global Business?

What are the unique challenges?

Unique IssuesUnique Issues

Complex Pricing exchange rates

Political Risk threats to ownership, and profit

Unique IssuesUnique Issues

Cultural Differences– tastes, values, language

Conflicting political demand– government policies, and economic systems

Advantages of GlobalizationAdvantages of Globalization

Scale economies Growth potential Factor costs Vertical integration demands Opportunities

Homogenization of global culture Competitive dynamics

What determines global business success?

Do competitive advantages transfer?

Advantages vary across value chain• Downstream advantages

• price, product design• Midstream advantages

• assets, skills, relations with other firms• Upstream advantages

• ability and willingness to learn, • adaptability

Transferring Competitive Advantage

Advantages vary across domains International Contexts

• public good issues regulatory climate, economy, trade policy, etc.

• infrastructure transportation, education, communication, etc.

Industry Contexts• structure

competitive rivalry, entry barriers, etc.

Transferring Competitive Advantage

Limitations on TransferabilityLimitations on Transferability

Geographic advantages– labor, monopoly positions, distribution network, reputation,

customer or supplier relations Tacit knowledge

– difficult to enact in different context, unknown interaction with context

Cost of transfer– loss of effectiveness or efficiency

Mode of transfer– joint venture, partnership, direct investment

Domestic advantages may not transfer across national boundaries The advantage in the home market may not be that

important in foreign markets. International advantages may not hold in

domestic markets A successful international competitor may not be the

strongest firm at home.

Limitations on TransferabilityLimitations on Transferability

Walmart Enters Germany

Does Small Town America Sell

in Europe?

How do firms enter global markets?

Balancing opportunity against opportunism

Modes of Entry

Exportation– accessing markets at low risk

Licensing– retaining some rights to product design

Joint Venture– looking for complementary knowledge

Foreign Direct Investment– going it alone

Balancing opportunity with opportunism

Opportunity– the potential returns from taking products into new

geographic regions Opportunism: contracting

– Moral hazard– Learning opportunities.

• knowledge transfer • knowledge development

Matching Advantage to Mode of Entry

Downstream advantages– export or license

Midstream advantages – joint venture or direct investment

Upstream advantages– direct investment

How do firms manage global operations?

Balancing Economics and Politics

Economic demands

Remain competitive within one’s industry– Improve efficiency by streamlining operations– Achieve economies of scale– Coordinate R&D efforts Share assets and knowledge as much as possible– Transfer people and knowledge

Political Demands

Be responsible to local government demands– jobs and taxes

Adjust to different regulatory setting– restrictions on competitive practices

Recognize cultural differences– product design and placement– human resource practices

Strategic Options: Global StrategyStrategic Options: Global Strategy

Regional or global approachCost advantage

• scale economies, rationalize and integrate activities , allows side-payments (good citizen), simplifies management practices

Lowers expropriation risk Bargaining power

• larger firms have more power

Efficiency

Strategic Options: MultinationalStrategic Options: Multinational

Nationally Responsive ApproachDifferentiation advantages

• respond to local tastes and preferences

Image advantages• subsidiaries have latitude to respond to local

political needs, used where government plays a key role

Locally Responsive

Strategic Options: TransnationalStrategic Options: Transnational

Balances cost with differentiation benefits• business manager• country manager• functional manager• corporate manager

Balance global efficiency and competitiveness with national-level responsiveness and flexibility

cross market capacity to leverage learning

Efficiency Responsive

Global Strategy Textbooks

Bartlett, Christopher A. & Ghoshal Sumantra– “Transnational Management,” McGraw-Hill– Text, Cases and readings

Bartlett, Christopher, and Ghoshal, Sumantra– “Managing across borders,” Harvard B-school Press– Transnational view of global firms

Yip, George S. – “Total Global Strategy II,” Prentice-Hall– Strategic focus

Global Strategy Texts and Readings

De la Torre, Jose, Doz, Yves and Devinney, Timothy– “Managing the Global Corporation,” McGraw-Hill– Case studies

Cullen, John B. – “Multinational Management: A strategic approach,” Southwestern

Publ. (Thompson Learning)– Management focus

Tallman, Stephan (2002), “Global Strategic Management (pp. 464-490).” In The Blackwell Handbook of Strategic Management, M. Hitt, E.R. Freeman, & J.S. Harrison (eds.). Blackwell Publ: Oxford, U.K.

Global Strategy Videos

Coca Cola enters Russia– Wall Street Journal Series: Management:

The Commanding Heights– 3-part PBS series

Proctor & Gamble in Europe– Harvard Business School video