international strategic management - SUDZUCKER company Germany
CORP 5039: International Strategic Management, Markets and Resources International strategy and new market entry
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Outline
The phenomenon of globalisation, drivers/ patterns of internationalisation and international strategies
Implications of international competition for industry analysis and the analysis of competitive advantage in an international context (theory of comparative advantage, Porter’s national diamond framework)
Determining the international location of production
Foreign market entry methods
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Globalisation
Globalisation: the increasing economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders (see Hitt et al, Strategic Management: Competitiveness and Globalization 2005: 10)
Global competition increases performance standards in many dimensions e.g. quality, cost, productivity and operational efficiency
However differences in institutional frameworks in countries means there is no one best globalisation strategy.
Rather, firms have to vary their strategies according to the institutional environments in those countries
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Drivers of Internationalization
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Market Drivers
Similar Customer needs
Cost Drivers
Scale Economies
Favourable logistics
Government Drivers
Trade policies
Global Customers
Transferable marketing
Country specific differences
Technical standards
Host government policies
Competitive Drivers
Competitors’ global strategies
Interdependence between countries
Patterns of Internationalization
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Main trading blocks
High concentration trading blocks:
EU – 28 countries – population approximately 0.5bn. World’s single largest market, with approx 73% of total output by the EU traded within its borders.
Mercosur (1991) Currently 4 countries
NAFTA (1994) (3 countries)
ASEAN (1967) (10 countries)
WTO - formerly GATT (1995) (164 countries) accession of China (11 December 2001), India (1995).
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International strategies 1
Johnson et al (2014), 10th ed.
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International strategies 2
There are four basic strategies firms may employ to enter and compete in a foreign market include:
Export strategy: Advantageous when both forces for global integration and local responsiveness are low
Leverages home country capabilities, innovations and products in different foreign countries
Companies that have distinctive capabilities together with strong reputation and brand names often achieve success following this strategy
The limits of a home country centralised view of the business and risks of skilled local competitors getting ahead are the strategy’s downsides
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International strategies 3
Multidomestic strategy: Where the focus is on maximising local responsiveness
Firms customise product and marketing strategies to suit local needs of the market
Encourages local product development and R&D centres, but may give rise to high cost base
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International strategies 4
Global strategy: One in which firms exploit experience curve effects and economies of scale through standardisation of products across country markets
Production, marketing and product development activities are concentrated in small numbers of advantageous locations
It produces lower risk but may cause firms to forego growth opportunities in local markets
Requires resource sharing and coordination across borders, making it difficult to manage
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International strategies 5
Transnational strategy: an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness
Difficult to achieve due to simultaneous requirement for strong centralised control for efficiency and high level of flexibility to achieve local market responsiveness
However, effective implementation can produce higher performance than either multi-domestic or global strategies
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The Benefits/Costs of Global Strategy (Forces for Globalization)
Cost Economies from Scale and Replication: Accessing global scale economies in purchasing, manufacturing, product development, marketing. Replicating knowledge assets.
Serving Global Customers
Exploiting National Resources
Learning Benefits: Accessing and integrating knowledge from multiple locations
Competing Strategically: Exploiting global strength to win local wars
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The Benefits/Costs of Global Strategy (Forces for National Differentiation)
Transportation and communication costs arising from geographical distance and remoteness
Differences in customer needs and behavioural norms arising from cultural factors (including institutional, governmental, regulatory and political differences
Market and infrastructure differences arising from differences in level of economic development
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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The CAGE framework- snowballing exercise
Cultural
distance
Administrative and
political distance
Geographic
distance
Economic/wealth
distance
Johnson et al (2014), 10th ed.
Implications of Internationalization for Industry Analysis 1
Internationalization usually results in increased intensity of competition within national markets and tends to reduce an industry profitability
Between 1976-2009, US automobile market went from 3 major players (GM, Ford, & Chrysler having 84% market share) to 14 firms with auto plants (reducing share of the former big three to 43% of auto sales).
From an industry analysis viewpoint, internationalization has direct influence on three of Porter’s 5 Forces:
Competition from potential entrants
Rivalry among existing firms
Increasing bargaining power of buyers
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Implications of Internationalization for Industry Analysis 2
Competition from potential entrants
Lowered entry barriers due to factors such as reductions in tariff, falling real costs of transportation and convergence of customer preferences
Competitive rivalry among existing firms
Increased internal rivalry resulting from increased number of firms competing in national market and hence lowering of seller concentration
Also, intensified rivalry may result from greater diversity of competitors
Increased buyer power: wider choice of suppliers for distributors and consumers
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Competitive Advantage within an International Context
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Theory of Absolute Advantage 1
UK
Mexico
Wheat
bushels/hr.
Bananas
lbs./hr.
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4
1
5
Exchange
Rate:
1 bu. = 1 lb.
UK: 2 hrs. = 6 bu. Wheat and 4 lbs. Banana, or
2 hrs. = 12 bu. Wheat
By trading, UK can get:
6 bu. Wheat and 6 lbs. Bananas
Gains from Trade
A ½ hour gain
from trade!
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Theory of Absolute Advantage 2
UK
Mexico
Wheat
bushels/hr.
Bananas
lbs./hr.
6
4
1
5
Exchange
Rate:
1 bu. = 1 lb.
Mexico: 2 hrs. = 1 bu. Wheat and 5 lbs. Bananas, or
2 hrs. = 10 lbs. Bananas
By trading, Mexico can get:
5 bu. Wheat and 5 lbs. Bananas
Gains from Trade
A 4 hour gain
from trade!
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Theory of Comparative Advantage
Absolute advantage is fine when each country party to the trade has an absolute advantage.
What if (using our previous example) the UK also had an absolute advantage in producing bananas over Mexico?
Ricardo (1817) suggests specialise where you have a Comparative advantage – or where you may be relatively less inefficient.
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National Influences on Competitiveness: Comparative Advantage
Comparative advantage refers to the relative efficiencies of producing different products
The theory states that a country has comparative advantage in those products that make intensive use of the resources that are abundant within that country. E.g.
Philippines relatively more efficient in the production of footwear, apparel, and assembled electronic products than in the production of chemicals and automobiles.
U.S. is relatively more efficient in the production of semiconductors and pharmaceuticals than shoes or shirts.
When exchange rates are well-behaved, comparative advantage translates into competitive advantage
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Porter’s Competitive Advantage of Nations
Porter notes the following:
International competitive advantage is about companies not countries—the role of the national environment is providing a home base for the company.
Sustained competitive advantage depends upon dynamic factors-- innovation and the upgrading of resources and capabilities
The critical role of the national environment is its impact upon the dynamics of innovation.
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Porter’s National Diamond Framework
FACTOR CONDITIONS—“Home grown” resources/capabilities more important than natural endowments.
RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”
DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation
STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Porter’s Determinants of National Advantage 1
Factor Conditions (Production)
Resources: skills, knowledge, capital, infrastructure
Demand Conditions (Home markets)
Clusters of excellence (Airbus in EU), buyer sophistication, position of product life cycle
Related and Support Industries
Innovation processes (EG Silicon Valley), competitive advantage in related industries (skills in leather make Italy a fashion centre for boots)
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Porter’s Determinants of National Advantage 2
Firm Strategy, Structure and Rivalry
Domestic industry structures (e.g. corporate cultures of Kaizen and TQM in Japan), level of sustained commitment and level of risk taking in investment
Chance
Pure inventions, shifts in financial markets or exchange rates, discontinuities (eg: new medical alternatives)
Government
Influences the 4 determinants.
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International Location of Production
3 considerations:
National resource conditions: What are the major resources which the product requires? Where are these available at low cost?
Firm-specific advantages: to what extent is the company’s competitive advantage based upon firm-specific resources and capabilities, and are these transferable?
Tradability issues: Can the product be transported at economic cost? If not, or if trade restrictions exist, then production must be close to the market.
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Determining the Optimal Location of Value Chain Activities
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Globally-Dispersed Production: Boeing 787 Dreamliner
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Production of the iPhone
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
| Item | Supplier | Location |
| Design and operating system | Apple | USA |
| Flash memory | Samsung Electronics | S. Korea |
| DRAM memory | Samsung Electronics; Micron Technologies | S. Korea USA |
| Application processor | Murata | Japan/Taiwan |
| Baseband | Infineon; Skyworks; Triquint | Taiwan USA |
| Power management | Dialog Semiconductor | Taiwan |
| Audio | Texas Instruments | USA |
| Touchscreen control | Cirrus Logic | USA |
| Accel. and gyroscope | ST Microelectronics | Italy |
| E-compass | AKM Semiconductor | Japan |
| Assembly | Foxconn | China |
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Alternative Modes of Overseas Market Entry
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
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Choice of Market Entry Modes 1
Potential for establishing competitive advantage is crucial to the means by which firms enter foreign markets
Key considerations in choice of entry modes include:
Breadth of competitive advantage
Tradability of product and barriers to trade
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Choice of Market Entry Modes 2
Johnson et al (2014), 10th ed.
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Alliances and Joint Ventures: Management Issues 1
Benefits:
Combining resources and capabilities of different companies
Learning from one another
Reducing time-to-market for innovations
Risk sharing
Problems:
Management differences between the two partners. Conflict most likely where the partners are also competitors.
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Alliances and Joint Ventures: Management Issues 2
Benefits are seldom shared equally. Distribution of benefits determined by:
Strategic intent of the partners- which partner has the clearer vision of the purpose of the alliance?
Appropriability of the contribution - which partner’s resources and capabilities can more easily be captured by the other?
Absorptive capacity of the company - which partner is the more receptive learner?
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