International Business take-home exam

IGP and Location Selection

BUAD 841 Fall 2017

Kurt Norder, Ph.D.

IGP and Location Selection

Agenda

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� Today we will… � Recap strategy & global strategy � Discuss the Industry Globalization Potential � Briefly consider approaches to country selection � Apply IGP and country selection to Hummus Bar

IGP and Location Selection

Building competitive advantage

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IGP and Location Selection

Economic contribution

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difference between the product’s value and its cost to the firm

IGP and Location Selection

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

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IGP and Location Selection

What’s happening today… � Technology changing the way we do most things … internet, robots � Globalization vs. nationalism

� Faster growth from emerging markets, job tensions � Interconnected global capital and markets

� Currency wars / printing, sovereign debt, slowing economies � Demographics … Aging populations, immigration � Scarcity … clean water, food, energy, etc. � Energy … rapid tech advances … fracking, solar, etc. … OPEC glut � War, Terror, & Ugliness … pushing the boundaries � Knowledge economy driving continuous learning … less disclosure

Instability, hypercompetition, need for flexibility

IGP and Location Selection

Global Trends

�Align with the trends �Shape the “worlds”/alternatives

IGP and Location Selection

Industry/Organization (I/O) Model

Suppliers

Substitutes

Buyers

Potential Entrants

Industry Rivalry

ManyMany

Few

IGP and Location Selection

Foreshadowing…

�IGP extends these concepts to consider how national differences influence the industry

IGP and Location Selection

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

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IGP and Location Selection

Resource-based (RBV) Model

Resources Physical, human, and organizational capital (tangible and intangible)

Capability An integrated set of resources

Core competence A source of competitive advantage

IGP and Location Selection

Resource-based (RBV) Model … VRIN

Costly to imitate

Rare

Nonsubstitutable

Valuable How resources become core competencies

IGP and Location Selection

Value Chain Analysis Support Activities

Primary Activities

Firm Infrastructure Human Resource Management

Systems & Solutions Materials & Equipment

Product Design

Operations Distrib. (Outbound Logistics)

Marketing

& Sales Service

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IGP and Location Selection

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

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IGP and Location Selection

Strengths Weaknesses

Opportunities Strategic actions that

use strengths to pursue opportunities

(SO Strategies)

Strategic actions that bolster weaknesses to pursue opportunities

(WO Strategies)

Threats

Strategic actions that use strengths to counter threats (ST Strategies)

Strategic actions that bolster weaknesses to

counter threats (WT Strategies)

TOWS Matrix

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IGP and Location Selection

Differences for IB…

� Location, location, location � Actually, how much does location matter? � What are you seeking (market, resources, or both)? � HQ-Subsidiary relationships … who leads decisions?

IGP and Location Selection

How do we assess national differences?

� CAGE provides a way to compare two countries � AAA and Integration-Responsiveness offer strategic

responses � Value Chain integration provides different tactics

IGP and Location Selection

CAGE distance � Cultural

� Different preferences and what is deemed appropriate � Language, ethnicities, religions, values/norms … traditional, insular

� Administrative � Laws and regs are different … hiring/firing, hours, loss leaders � Colonial ties, trading bloc, currency, in int’l orgs, corruption

� Geographic � Transportation costs and access to shipping lanes � Shared border, time zone, climate, size, remoteness

� Economic � Ability to pay, market size, capital availability, infrastructure

IGP and Location Selection

A-A-A Strategies � Aggregation

� Seek out similar environments for rapid growth in markets � Similar to Global strategy to reduce impact of distance

� Adaptation � Change to match what locals want � Similar to Multidomestic to embrace impact of distance

� Arbitrage � Buy low and sell high � Similar to International by replicate advantage across borders

� Combinations are difficult since they seem to be conflicting � BUT, a business model has several parts

� R/COV: resources/competence, organization, and value proposition � Connect the strategies that fit inside and with enviro pressures

IGP and Location Selection

Integration vs. Responsiveness � Pressures for global integration

� Globalization of markets … common tastes, easy flows � Borrowing in London for investment in China � R&D in Israel with SW programming in India and Assembly in Vietnam � More specialization and trade

� Efficiency gains from standardization � Pressures for local responsiveness

� Divergent consumer behaviors � Culture matters, but usually hurts efficiency

� Host-government policies � Local production or hiring requirements

Usually somewhere between the extremes, but where?

IGP and Location Selection

Integration vs. Responsiveness • Scale Economies • similar demand/

standard product • Centralize at HQ • Typical cost leader

• Adapt for local demands to increase value

• Local autonomy • Focused on single

country as the market

• Local differentiator

• Combined, similar to integrated/hybrid

• “Flexible coordination”

• Integrated network

• Little adaptation but still benefit from core competences in foreign locations

IGP and Location Selection

Vertical Integration (across borders)

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Country 1 (Product Design)

Country 2 (Ops)

Country 3 (Distribution)

Country 4 (Mktg & Sales)

Country 5 (Service)

Tap into location advantages needed for each activity

IGP and Location Selection

Horizontal Integration

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Country 1 (Product Design)

Country 1 (Ops)

Country 3 (Distribution)

Country 3 (Mktg & Sales)

Country 5 (Service)

“Real options” from multiple locations for the same activity

Country 2 (Distribution)

Country 4 (Distribution)

Country 2 (Mktg & Sales)

Country 4 (Mktg & Sales)

IGP and Location Selection

Yip’s Model for “Total Global Strategy”

IGP and Location Selection

Path to global (integrated) strategy… � Build a “core strategy” at home

� Make sure you have an advantage before you go abroad � Liability of foreignness…need to offset extra costs of IB transactions

� Internationalize the “core” � I-R: “International” strategy or “Multidomestic”?

� Globalize the strategy � Increased integration/coordination of multi-country strategies � Is this I-R: “Global” strategy or “Transnational”?

IGP and Location Selection

Industry Globalization Potential Market Factors

Competitive Factors

Governmental Factors

Cost Factors IGP

IGP and Location Selection

Market Factors… � Homogenous needs

� What are the basic needs/wants that apply to everyone? � How do you know for new products?

� Global customers � The same customer buys in multiple locations or centrally

� Global channels � Distribution to one player reaches multiple markets

� Transferrable marketing � Even with similar needs, different people want different prices,

placement, promotions, and products to fill that need

IGP and Location Selection

Cost Factors… � Economies of scale and scope

� Connected to market size, standardization, and shared overhead � Learning and experiences

� Deeper knowledge and complexity adds costly time � Sourcing efficiencies … volume discounts � Favorable logistics … low weight to value ratio � Differences in country costs & skills … arbitrage � Product development costs

� Standard product from best skill at lowest cost

IGP and Location Selection

Governmental Factors… � Favorable trade policies

� Local production or Ex/Im? � Compatible technical standards

� Can you design to meet all at the same time? � Common marketing regulations

� Brand names or tactics such as “Loss leaders” or “Sex sells”?

IGP and Location Selection

Competitive Factors… � Interdependence of countries

� Shared activities � Vertical integration/Location concentration

� Competitors globalize or might globalize

IGP and Location Selection

Strategy Levers… � Major market participation

� No pattern or need larger markets for scale � Product standardization

� Customization or not by country (… what about modularity?) � Activity concentration

� Mini-me’s or concentrated in one place (… Value Chain?) � Uniform marketing

� Local to match the local product or the same everywhere � Integrated competitive moves

� Optimize each country or as a whole

IGP and Location Selection

Next steps… � Connect it to your model/internal analyses

� Strengths and Weaknesses � Value-creating activities

� Identify important factors � Many connected to IGP, but be more specific

� Scan to limit comparison set … tough to do all countries � Find data that can relate to estimate differences

� No data or “bad” data means find a proxy � Prioritize the measures

� sum up to 1 � consistent scoring

IGP and Location Selection

Key take-aways

� IGP helps identify if “Global” strategy is appropriate � “Mixed” factors Æ specialization or mixed models � Internationalization as a process

� core-adapt-globalize OR core-globalize-adapt Æ TN � Data driven approaches

� Scan to limit countries � Detailed, systematic evaluation based on priorities

IGP and Location Selection

Teams Name Team Zhenhan Cheng 1 Yaru Liu 1 Yichang Liu 1 Chenqiaozhi Zhou 1

Jiangyi Qiu 2 Xiaolin Song 2 Bowen Yuan 2 Qihan Zhao 2

Dexter Alexander 3 Yin Ding 3 Naomi Wakiaga 3 Yve Xu 3

IGP and Location Selection

Team application exercise… 40 min � The exercise:

� Apply the IGP framework to Hummus Bar’s industry � Assess which location Hummus Bar should choose (and why)

� As you are doing this, think about the following for discussion � What makes it difficult for you to do the analysis? � What can you do to improve that? � What are the major location and control challenges that Hummus

Bar faces?

IGP and Location Selection

Parting thoughts for the day

� I’m available by email or stop by Lerner 209 � For next class…

� Mainly Porter’s Diamond (Canvas/online) � Textbook Ch 14 – Export/Import (skim for high

level concepts) � Swatch case (HBS)

� Quiz 3 should be open at 5 pm tomorrow… until start of class for Week 4 (i.e. before I see you again)