Aims and background Choosing an appropriate market entry mode is an important decision-making process for international businesses when they expand their business to foreign markets. Appropriate decision on entry mode is more likely to occur when solid an
dodo123
simtopic5.pptInternational Business: Actions
Internationalisation Theories and Practices (I)
Business College
School of Management
Key Questions
- What approaches to global strategy do firms take?
- How do organisations internationalise?
- How does international business manage its internal operations globally?
- How does international business manage its external operations (e.g. relationship with the host country/communities)?
Key Learning Objective
- This session will help you to understand the concepts of:
1) Michael E. Porter’s Diamond Model
2) Global Strategy – Ghosal & Nohria Matrix
3) Born Global Concept
Michael E. Porter’s Diamond Model
- Porter argues that nations can create factors that promote competitive advantage of nations as well as stronger level of FDI.
RMIT University
School of Management
*
School of Management
Examples of National competitive Advantages
- Abundant, low-cost labor in China
- Mass of IT workers in India
- Huge reserves of bauxite in Australia
- Abundant agricultural land in the USA
- Oil in Saudi Arabia
RMIT University
School of Management
*
School of Management
Michael E. Porter’s Diamond Model
RMIT University
School of Management
*
School of Management
Michael Porter’s Diamond Model:
Sources of National Competitive Advantage
Firm strategy, structure, and rivalry – the presence of strong competitors at home serves as a national competitive advantage
Factor conditions – labour, natural resources, capital, technology, entrepreneurship, and know how
Demand conditions at home – the strengths and sophistication of customer demand
Related and supporting industries – availability of clusters of suppliers and complementary firms with distinctive competences
RMIT University
School of Management
*
School of Management
*
Industrial Clusters
- A concentration of suppliers and supporting firms from the same industry located within the same geographic area
- Examples include: the Silicon Valley, fashion cluster in northern Italy, pharma cluster in Switzerland, footwear industry in Pusan, South Korea, and the IT industry in Bangalore, India
- Can serve as a nation’s export platform
RMIT University
School of Management
*
School of Management
National Policy
- Proactive economic development plan enacted by the government to nurture or support promising industries sectors.
- Typical initiatives:
Tax incentives
Investment incentives
Monetary and fiscal policies
Rigorous educational systems
Investment in national infrastructure
Strong legal and regulatory systems
- (Examples: Japan, Dubai, and Ireland)
RMIT University
School of Management
*
School of Management
Activity 1: Diamond Model
- Please discuss the concept of Porter’s diamond model and apply it to one industry in one country.
RMIT University
School of Management
*
School of Management
Bartlett and Ghoshal’s Model of Internationalization Strategy
RMIT University
School of Management
*
School of Management
Source: Adapted from Bartlett and Ghoshal (1991)., Managing Acrocc Border, Harvard Business Press.
*
International strategy
- Create value by transferring valuable core competencies to foreign markets that local competitors lack.
- Centralise product development functions at home
- Establish manufacturing and marketing functions in local country but head office exercises tight control over it
- Limit customization of product offering and market strategy
Strategy effective if firm faces weak pressures for local responsive and cost reductions
Multidomestic strategy
- Main aim is maximum local responsiveness.
- Customize product offering, market strategy including production, and R&D according to national conditions
- Generally unable to realize value from experience curve effects and location economies.
- Possess high cost structure.
Global strategy
- Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies.
- Production, marketing, and R&D concentrated in few favorable functions.
- Market standardized product to keep cost low.
- Effective where strong pressures for cost reductions and low demand for local responsiveness.
Transnational strategy
- To meet competition firms aim to reduce costs, transfer core competencies while paying attention to pressures for local responsiveness
- Global learning
Valuable skills can develop in any of the firm’s world wide operations
Transfer of knowledge from foreign subsidiary to home country, to other foreign subsidiaries
- Transnational strategy difficult task due to contradictory demands placed on the organization
Example : Caterpillar
Activity 2: IB Strategies in Action
- In your team, please select one MNC and discuss their strategy and identify which of the 4 strategies that best suits your company. Why? What are the advantages and disadvantages of the strategy?
Born Global
- The ‘Born Global’ concept was coined in a survey for The Australian Manufacturing Council by the McKinsey Consultants
- In Australia, a new breed of exporting companies, which contributed substantially to the nation's export capital, was then emerging. The creation of these exporters though not unique to the Australian economy, reflects 2 fundamental phenomena of the 1990s:
1.Small is beautiful
2.Gradual internationalization is dead
Born Global
- Amongst the Born Global firms, in Australia, there are several high-tech firms, but the typical firm uses well-known technology.
- These firms have experienced higher growth rates than other industries in Australia and a large growth in their export compared to their home-market sales.
- A major factor in the explanation of the Born Global phenomenon (McKinsey & Co., 1993) is the management’s commitment to internationalization.
- Another major factor is the firm’s ability to standardize production, marketing, etc. in a global niche instead of developing customized products.
Factors Supporting ‘Born Global’
- Dramatic increases in speed, quality and efficiency of international communication and transportation have reduced the transaction costs of multinational interchange.
- Increasing homogenization of many markets in distant countries has made the conduct of international business easier to understand by everyone.
- International financing opportunities are increasingly available.
- Human capital is internationally mobile.
Activity: Born Global
[Synthesise]
- In your team, please select 1 company that is considered ‘Born Global’ and identify factors promoting the company to become a ‘born global’ company.
References
- Ghoshal, S., & Nohria, N. (1993), “Horses for courses: Organizational forms for multicultural corporations”, Sloan Management Review, Winter 1993, pp. 27, 31.
Johanson, J., Vahlne, J.-E. (1977), "The internationalization process of the firm – a model of knowledge development and increasing foreign market commitments", Journal of International Business Studies, Vol. 8 No.1, pp.23-32. - Madsen, T.K., Servais, P. (1997), "The internationalization of born globals: an evolutionary process?", International Business Review, Vol. 6 No.6, pp.551-81.
- Oviatt, B.M., McDougall, P.P. (1994), "Toward a theory of international new ventures", Journal of International Business Studies, Vol. 25 No.1, pp.45-64.
- Oviatt, B.M., McDougall, P.P. (1995), "Global start-ups: entrepreneurs on a worldwide stage", Academy of Management Executive, Vol. 9 No.2, pp.30-44.
Future Reading
Anderson, Erin and Hubert Gatignon. 1986. Modes of Foreign Entry: A Transaction Cost Analysis. Journal of International Business Studies, 17: 1-26.
Kogut, B. and H. Singh. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19: 411-432.
- Hennart, J.-F. and Y.-R. Park. 1993. Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Management Science, 39(9): 1054-1070.
- Hennart, J. F., and Reddy, S. 1997. The Choice Between Mergers/Acquisitions and Joint Ventures: The Case of Japanese Investors in the United States. Strategic Management Journal 18: 1-12.
- Barkema, H. G. and Vermeulen, F. 1998. International Expansion Through Start-up or Acquisition: A Learning Perspective. Academy of Management Journal 41: 7-26.
- Brouthers, K. D. and Brouthers, L. E. 2000. Acquisition or Greenfield Start-up? Institutional, Cultural and Transaction Cost Influences. Strategic Management Journal 21: 89-97.
