Strategic Management Essays, The quality of your answer is much more important than its quantity. You do not need to use in-text citation, nor reference in answering the questions.
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Module8InternationalStrategy20.pdf
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Opening story: Why Tesla Is Betting Big in China With a Shanghai
'Gigafactory'
https://www.youtube.com/watch?v=rHO-ctMgygc&t=18s
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Internationals expansion for Australian firms: A bless or a curse
Successful Australian companies in their international expansion
BHPBilliton, Rio Tinto, CSL Cochlear, ResMed A2 Milk,
Australian companies with heavy losses in their international expansion
ABC learning (Bankrupted) Centro Properties (Almost Bankrupted) AMP in UK (Withdrawn) Wesfarmers in UK
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A2 Mi : A hi e g d e e
The a2 Milk Company is an ASX public listed company.
It manufactures intellectual property relating to a2 milk, as well as the milk and related products like infant formula.
Over 30% of its products are exported, including China, UK and USA
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Wesfarmers: Bunnings UK & Ireland - Success recipe at home does not work overseas
It acquired acquisition UK H eba e in Jan 2016 and became Bunning UK
Writing down for Bunnings UK in 2017 reached $1.3 billion The UK market had struggled with the move to everyday low pric ing (EDLP) model, which has proved a winner for Bunnings in Australia.
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Learning Objectives After you have studied this module, you should be able to
Understand the drivers for internationalisation Why go international?
Understand P e Dia d a d ca i a ad a age Distinguish between four main types of international strategy:
Global, transnational, multidomestic, and export The strengths and limits of each of these international
strategies Modes of international market entry
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Ke e i add e ed i da ec e
1. What drives internationalisation expansion
2. Wha i P e Dia d a d h d e i he e ai location advantage?
3. What are 4 international Choices (and how and when should they be used?)
4. What are the market entry modes available to companies (And how do managers choose which is between the methods?
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1. WHAT DRIVES INTERNATIONALISATION
Yi de f i e a i a i a i
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The global economy: A brief overview
Globalization the increase in international exchange, including trade in goods and services as well as exchange of money, ideas, and information. the growing similarity of laws, rules, norms, values, and ideas across countries.
For many industries, globalization has become a necessity for survival
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Internationalisation drivers Why go international? (Yip)
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LO1
Internationalisation drivers
Market drivers A critical facilitation of internationalization is standardization of market
characteristics Similar customer needs and tastes: OZ and NZ
Global customers: car part manufacturers Transferable marketing: Brands
Cost drivers Costs can be reduced internationally
Scale economies: large volume of operations Country specific differences: Production and R&D Favorable logistics: Iron ore shipment to China
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Internationalisation drivers
Government drivers Reduction of barriers to trade and investment
WTO, regional economic integration partnership (EU, ASEAN, TPP, NAFTA, EAC), Bilateral trade agreement (FTA) Technology standardization
Competitive drivers Increase in interdependence between country operations globalized competitors
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2.WHAT IS PORTER S DIAMOND AND HOW DOES IT HELP EXPLAIN LOCATION ADVANTAGE
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LO2
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L ca i ad a age : P e diam d
Por er Diamond explains why some locations tend to produce firms with sustained competitive advantages in some industries more than others. The fo r dri er in Por er Diamond stem from:
local factor conditions local demand conditions local related and supporting industries local firm strategy structure and rivalry.
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L ca i ad a age : P e diam d
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Fac affec i g a a i c e i i e e
Factor endowments The a i i i i fac f d c i , ch a i ed ab infrastructure, necessary to compete in a given industry. E.g., Mining technologies in Australia, skilled and cheap labor in China.
Demand conditions The nature of home- a e de a d f he i d d c e ice. E.g., the demand of foreign customers makes Chinese white-goods manufacturers more competitive
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Fac affec i g a a i c m e i i e e (c d)
Related and supporting industries The presence or absence in the nation of supplier industries and other related industries that are internationally competitive. E.g., industry clusters, Silicon valley in US, Japanese electronics, Italian shoes and leather
Firm strategy, structure, and rivalry The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry E.g., the Australian banking industry and wine industry
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3. WHAT ARE THE FOUR INTERNATIONAL STRATEGY CHOICES
(and how and when should they be used?)
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LO3
International strategies
Key considerations The global local dilemma relates to the extent to
which products and services may be standardised across national boundaries or need to be adapted to meet the requirements of specific national markets.
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Four international strategies
Pressure for local adaptation/ responsiveness
Low High
Low
High
Multidomestic: Country-centred strategy with a number of domestic firms operating in only one country
Transnational: High foreign investment with extensive coordination among subsidiaries
Global strategy Same/similar product sold in all countries
Pressure for cost reductions (Global integration)
Export strategy: Export-based strategy with decentralized marketing
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Export strategy Export strategy (or International strategy)
a a eg ba ed fi diff i a d ada a i f he a e c a ie edge a d expertise to foreign markets, used in industries where the pressures for both local adaptation and lowering costs are low. Example: Google, Wine, Infant formula
Strengths and Limitation Strengths
Le e age a d diff i f a a e fi edge a d c e c e e cie Lower costs because of less need to tailor products and services
Limitations Limited ability to adapt to local markets Inability to take advantage of new ideas and innovations occurring in local markets
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Global strategy
I i ba ed a fi ce a i a i a d c b he corporate office
Same/similar product sold in all countries Industries such as aerospace, automobiles, telecommunications, metals, computers, chemicals, and industrial equipment e.g., Dell, Caterpillar, American Standard Formulating and implementing strategy is more critical for global industries than multi-domestic industries.
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Gl bal a eg (c d)
Strengths strong integration across various businesses standardization leads to higher economies of scale, which lower costs.
Help create uniform standards of quality throughout the world Limitations
Limited ability to adapt to local markets Increased dependence on a single facility Single location may lead to higher tariffs and transportation costs.
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Multi-domestic strategy
It refers to country-centred strategy with a number of domestic firms operating in only one country.
Emphasis is differentiating products and services to adapt to local markets Authority is more decentralized It is suitable for those firms with their primary activities in downstream of
value chains, such as services industry, such as: Carrefour, IT firms. E.g., Companies in the food and beverage, consumer products, and clothing and fashion industries, particularly in European markets
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Multi-d e ic a eg (c d)
Strengths can adapt products and services to local market conditions can detect potential opportunities for attractive niches in a given
market, enhance revenue. e.g., ANZ Bank
Limitations Decreased ability to realise cost savings through scale economy Greater difficulties in transferring knowledge across countries May lead to over-adaptation as conditions change
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Transnational Strategy
Optimization of tradeoffs associated with efficiency, local adaptation, and learning
Fi a e a d ca abi i ie a e di e ed acc di g the most beneficial location for a specific activity
Examples: Airbus, Apple: Toyota, Ikea, Starbucks;
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T a a i al S a eg (c d)
Strengths Ability to adapt to local markets Ability to attain economies of scale Ability to locate activities in optimal locations Ability to increase knowledge flows and learning
Limitations Unique challenges in determining optimal locations of activities to ensure cost and quality Unique managerial challenges in fostering knowledge transfer
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How IKEA implements its transnational strategy
More than 90% of the product line at Ikea is identical in its global markets with some minor modifications in several countries. The overall marketing strategy is centrally developed at its HQs. However, the strategy is executed with adjustments to local context. Many strategic decisions, such as advertisement contents, are made by its national managers.
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4. WHAT ARE THE MARKET ENTRY MODES AVAILABLE TO COMPANIES?
And how do we choose which is between the methods?
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LO4
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Modes of international market entry
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LO3
Exporting
Advantages
No need for operational facilities in host country
Economies of scale in the home country
Internet can facilitate exporting marketing opportunities
Disadvantages
Lose any location advantages in the host country
Dependence on export intermediaries
Exposure to trade barriers
Transportation costs
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Licensing
Advantages Contractual source of income
Limited economic and financial exposure
Disadvantages Difficult to identify good partner
Loss of competitive advantage
Limited benefits from host nation
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Joint ventures and alliances
Advantages
Shared investment risk
Complementary resources
Maybe required for market entry
Disadvantages
Difficult to find good partner
Relationship management
Loss of competitive advantage
Difficult to integrate and coordinate
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Foreign direct investment (Wholly owned subsidiaries (WOS)
Advantages
Full control
Integration and coordination possible
Rapid market entry through acquisitions
Greenfield investments are possible and may be subsidised
Disadvantages
Substantial investment and commitment
Acquisitions may create integration/ coordination issues
Greenfield investments are time consuming and unpredictable
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Entry modes of international expansion
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Ke e i add e ed i da ec e
1. What drives internationalisation expansion
2. Wha i P e Dia d a d h d e i he e ai location advantage?
3. What are 4 international Choices (and how and when should they be used?)
4. What are the market entry modes available to companies (And how do managers choose which is between the methods?_
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Module Summary Internationalisation potential in any particular market is determined by Yip fo r dri er : a e , c , g e e a d c e i strategies.
There are four main types of international strategy, varying according to extent of coordination and geographical configuration: export, transnational, multi-domestic and global.
Each international strategy has its own strengths and weaknesses
Different entry mode can have different level of benefits and risks
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Next Week
Read Chapter 11 Mergers, Acquisitions, and Alliances
C i e i g P i g O e S a egic I i ia i e (Task 3 of Assignment 2)
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