Ninth

Edition

6-1
 Chapter Learning Goals

1. To understand the reasons companies

engage in international business

2. To learn the steps in global strategic

planning, including assessing entry
strategies for different markets

3. To become familiar with strategic planning

for emerging markets

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 Opening Profile: Amazon, eBay, and Flipkart
Bet Big on India

Amazon entered India in 2013 and plans to

dominate the e-retailing marketplace before
Walmart expands its e-commerce
EBay has been in India since 2005 and has invested
large amounts in Snapdeal to grow its market share
there
Flipkart, India’s biggest e-retailer is injecting $1
billion of fresh capital there
The Indian online retail market has grown at 56
percent annually for seven years and will grow to
$8.3 billion in 2015

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 Chapter Learning Goals

To understand the reasons

companies engage in
international business.

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 Strategic Planning and Strategy

• More complex than domestic

strategic planning because of
Strategic
Planning more complex variables

• The basic means by which the

Strategy
firm competes

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 Reasons for Going International

Reactive/Defensive Proactive/Aggressive
 Globalization of  Economies of scale
competitors  Growth opportunities
 Trade barriers  Resource access and cost
 Regulations and savings
restrictions  Incentives
 Customer demands

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 Reactive/Defensive
Globalization of competitors
If organizations allow their competitors to become entrenched in foreign markets, it
becomes increasingly difficult to enter those markets at a later date. Additionally, the
advantages competitors realize overseas may also translate into advantages at
home.

Trade barriers
Tariffs, quotas, buy-local policies, and other restrictive trade practices can make
exports to foreign markets too expensive and impractical to be competitive.

Regulations and restrictions

Similarly, restrictions by a firm’s home government may become so expensive that
companies seek out less foreign operating environments.

Customer demands
Some foreign customers may demand that their supplying company operate in their
local region so that they have better control over their supplies. For example,
McDonald’s asks it domestic suppliers to follow it to foreign ventures.

7
 Proactive/Aggressive
Economies of scale
Achieving world-scale volume to make the fullest use of modern capital-
intensive manufacturing equipment and to amortize research and development
costs when facing brief product life cycles.
Growth opportunities
Companies in mature markets in developed countries can grow by seeking
opportunities in emerging markets. For example, FedEx has been able to grow
in Asia because it entered the markets long before its competitors. The text also
uses McDonald’s and Avon as examples.
Resource access and cost savings
Labor and other resource costs can be much lower in foreign locations than they
are at home.
Incentives
Governments wishing to attract new capital, technology, and know-how often
provide incentives such as tax exemptions, tax holidays, subsidies, loans, and
the use of property. These incentives decrease risk and increase profits for
foreign firms.

8
 Comparative Management In Focus:
Global Companies Take Advantage of
Opportunities in South Africa
 South Africa: ranked the leading economy in Africa
and 14th out of 26 emerging economies, behind China,
India, and Russia
 Businesses are taking advantage of opportunities
because of
 the legal protection of property
 high labor productivity
 low tax rates
 reasonable regulation
 low level of corruption
 good access to credit
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 South
Africa

6-10
 Strategic Management Process

The strategic planning

process identifies potential
opportunities for (1)
appropriate market
expansion, (2) increased
profitability, and (3) new
ventures for exploiting
strategic advantages.

6-11
  The global formulation process parallels the domestic process, but
it is more complex because of the greater difficulty in gaining
accurate and timely information, the diversity of geographic
locations, and the differences in political, legal, cultural, market,
and financial processes. The strategic planning process identifies
potential opportunities for (1) appropriate market expansion, (2)
increased profitability, and (3) new ventures for exploiting
strategic advantages.
 This figure demonstrates the process is comprised of two primary
phases: planning and implementation.
 In reality, the stages depicted in this slide are rarely so linear.
Instead, the process in continuous and intertwined.
12
 Chapter Learning Goals

To learn the steps in global

strategic planning, including
assessing entry strategies for
different markets

6-13
 Steps in Developing International
and Global Strategies
Mission and Objectives

Environmental Assessment and

Scanning

Internal and Competitive Analysis

Global Integrative and Entry

Strategy Alternatives
Evaluate Entry Strategy
alternatives

Decide on Strategy
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 Step 1: Establish Mission and Objectives

• Worldwide, regional, national

Marketing market share

• Production volume
Production • Economies of scale

• Tax burden
Finance
• Capital structure

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 Step 1: Establish Mission and Objectives

• ROA (Return on assets)

• ROE(Return on common equity)
Profitability • ROI(Return on Investment)

• Global patents
R&D

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 Example (P244): What do you think
about their mission statements?

 Although both mission statements indicate a focus on customers, Sanyo offers them a more
enjoyable life, is more relationship-oriented, and emphasizes harmony and the environment,
indicating a long-term focus, factors typical of Japanese culture. Siemens offers efficiency to
itscustomers and a premium return to its shareholders; this mission statement is explicit and
decisive, typical of German communication; this compares with the more descriptive and
implicit statement by Sanyo gives.
17
 Step 2: Assess External Environment

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 Under the Lens: McDonalds in Russia: A
Political Pawn

•In 2014, the Russian government consumer watchdog,

closed four McDonald’s restaurants in Moscow and
conducted unscheduled checks on branches
throughout the country
•McDonalds had been in the news, when Russia
annexed Crimea, because management closed outlets in
Crimea to protect employees

•McDonald’s has 37,000 employees in 440 branches in

Russia. It is concerned about future growth because of
government interference and crackdowns on business
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 Environmental Scanning Variables

Political and Technological,

Economic Legal, Physical
Risk Restraints

International
Competition Nationalism

6-20
 Institutional Effects on
International Competition

• The extent to which

Attractiveness
countries have institutions
of Overseas
to promote the rule of law
Markets
to outside investors

• Creating barriers to entry

Entry Barriers in certain industries and
and Industry making those industries
Attractiveness more attractive (profitable)
for incumbent firms

6-21
 Institutional Effects on
International Competition

• The current U.S.

antidumping laws place a
foreign entrant at a
Antidumping disadvantage if accused of
as an Entry “dumping”.
Barrier

Cá tra Việt Nam tiếp tục bị Mỹ áp thuế

chống bán phá giá - Tuổi Trẻ Online
6-22 ([Link])
 Antidumping
 Anti-dumping. If a company exports a product at a price
lower than the price it normally charges on its own home
market, it is said to be “dumping” the product. The WTO
Agreement does not regulate the actions of companies
engaged in "dumping". Its focus is on how governments can
or cannot react to dumping it .
 The WTO Agreement
[Link]

23
 Step 3: Analyze Internal Factors

Internal Analysis Competitive Analysis

 Key Success Factors  SWOT analysis (strengths,

(KSFs) : weaknesses,opportunities,
 Technological and threats)
capability: Apple
 Distinctive competencies
 Distribution channels: Google(brand name),
Wal-Mart, Carrefour
Amazon(brand recognition, best-in-
class distribution, and an immensely
talented workforce) (p.250)
 Promotion capabilities:
Nike ,Disney  Comparative advantage
 E-Business (table 6-1,p255)
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 Step 3: Analyze Internal Factors
 There are a variety of public information sources
available to provide information to organizations.
Company’s also use clipping services. However,
internal sources of information are usually
preferable because they help eliminate unreliable
information from secondary sources. Mitsubishi
Trading Company employees more than 60,000
market analysts worldwide who gather, analyze,
and feed market information to the parent
company.
25
 Step 3: Analyze Internal Factors
 Internal analysis involves weighing the
company’s options relative to its strengths and
weaknesses. Company’s must identify their key
success factors and determine how they can help
the firm exploit foreign opportunities. This slide
shows several examples of key success factors for
well-known companies.
 All companies have strengths and weaknesses, the
challenge is to identify both and take appropriate
action.
26
 Step 3: Analyze Internal Factors
 At this point executives must assess the firm’s
capabilities and key success factors compared to those of
its competitors. This process enables strategic planners
to determine where the firm has distinctive
competencies that might lead to sustainable competitive
advantage. Most companies develop their strategies
around these distinctive competencies, or key strengths.
They are usually difficult for competitors to imitate.
 This strategic formulation is often called SWOT analysis.

27
28
Strategic
Decision-
Making
Models

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 Step 4: Evaluate Global and International
Strategic Alternatives

Regionalization/
Localization

Global
Global
Integrative

Alternative
Strategies

6-30
 Step 4: Evaluate Global and
International Strategic Alternatives
 The strategic planning process involves
considering the advantages (and
disadvantages) of various strategic
alternatives in the light of the competitive
analysis. While weighing alternatives,
managers must take into account the goals
of their firms and the competitive status of
other firms in the industry.
31
 Pressures to Globalize

 Increasing competitive clout resulting

from regional trading blocs
 Declining tariffs
 Information Technology explosion
Depending on the size of the firm, managers must consider two levels of
strategic alternatives. The first is global strategic alternatives, which
determine the overall approach to the global marketplace a firm wishes
to take. This level primarily applies to MNCs. The second level is entry
strategy alternatives.

6-32
 Pressures to Globalize
 Depending on the size of the firm, managers must consider
two levels of strategic alternatives. The first is global strategic
alternatives, which determine the overall approach to the
global marketplace a firm wishes to take. This level primarily
applies to MNCs. The second level is entry strategy
alternatives.
 Global strategies or globalization refer to the establishment
of worldwide operations and the development of
standardized products and marketing. The rationale is to
compete by establishing worldwide economies of scale,
offshore manufacturing, and international cash flows.

33
 Pressures to Globalize
 The impetus for globalization usually includes (1) increasing
competitive clout resulting from regional trading blocs, (2)
declining tariffs, which encourage trading across borders and
open up new markets, and (3) the information technology
explosion, which makes the coordination of worldwide
operations easier and increases the commonality of consumer
tastes.
 There are, however, challenges associated with a global
strategy. It makes the firm more vulnerable to environmental
risk, it is difficult to manage, companies often lose some of
their original identities through denationalization, and there
can be a lack of flexibility and responsiveness at the local
34 level.
 Regionalization/Localization

 Local markets are linked together within

a region, allowing local responsiveness

 The impetus:
 Unique consumer preferences (right-hand-drive cars
for Japan)
 Domestic subsidies
 New production technologies

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 Cage Distances Between Countries (p.253)

 Cultural Distance
 Administrative Distance
 Geographical Distance
 Economic Distance
Example: p. 254

6-36
 Cage Distances Between Countries
 Ghemawat argues that strategy cannot be decided
either on a country-by-country basis or on a one-
size-fits-all-countries basis but, rather, that both
the differences and the similarities between
countries must be taken into account. He bases
his perspectives on the cultural, admin- istrative,
geographic, and economic (CAGE) distances
between countries,

37
 Global Integrative Strategies

 Full vertical and horizontal integration

 Example: Dell
 Factories in Ireland, Brazil, China, and
so on
 Assembly and delivery system from 47
locations around the world
 Little inventory(builds each computer to order),
ability to change operations quickly

6-38
 Global Integrative Strategies
 Many MNCs have developed their global
operations to the point of full integration,
including suppliers, productive facilities,
marketing and distribution outlets, and
contractors around the world. Dell is an
example of a fully integrated company.

39
 Change in World Internet Usage as of Q2 2014

6--40
 E-Business for Global Expansion

6-41
 E-Global or E-Local?

E-Global When: E-Local When:

 Trade is global in  Production and
scope consumption are
regional in scope
 Business does not  Customer behavior
involve delivering and market structures
orders differ across regions,
but are similar within a
 When the business region
model can be easily  Supply-chain
hijacked by local management is very
competitors important to success
 This strategy would work well for
6-42 global B2B markets in steel, plastics,
and electronic components.
 Step 5: Evaluate Entry Strategy Alternatives

Exporting
Licensing
Franchising
Contract Manufacturing
Offshoring
Service Sector Outsourcing
Turnkey Operations
Management Contracts
International Joint Ventures
Fully Owned Subsidiaries
E-business

6-43
 Step 5: Evaluate Entry Strategy Alternatives
As a relatively low-risk alternative, many small firms
seldom go beyond exporting, and large firms use
this avenue for many of their products. Experienced
firms may establish an export department or hire an
export management company. When setting up an
export system, particular care must be given to
choosing a distributor, as many countries have
regulations that make it difficult to remove an
inefficient distributor. Jordan Toothbrush is a small
toothbrush manufacturer in Norway.

44
 Step 5: Evaluate Entry Strategy Alternatives
 Licensing grants the rights to a firm in the host country to either
produce or sell a product, or both. The agreement involves the
transfer of rights to patents, trademarks, or technology for a
specified period of time in return for a fee paid by the licensee.
Anheuser-Busch has licensees in England, Japan, Australia, and
Israel. Licensing is relatively low risk because it requires little
investment. It makes sense in countries where entry by other
means is prohibited and for products in the mature phase of the
life-cycle—when competition is intense, margins decline, and
production is relatively standardized. It also is useful for firms
with rapidly changing technologies, diverse product lines, and
small firms with few financial and managerial resources for direct
investment abroad.
45
 Step 5: Evaluate Entry Strategy Alternatives
 With franchising, a franchisor licenses a company’s
trademark, products and services, and operating principles to
the franchisee for an initial fee and ongoing royalties.
Franchising also is relatively low risk and is ideal for small
businesses.
 Contract manufacturing involves contracting for the
production of finished goods or component parts. These
goods are then imported to the home or other countries for
assembly or sale, or they are sold in the host country. Nike is
an example of a company that uses contract manufacturing.

46
 Step 5: Evaluate Entry Strategy Alternatives
 Offshoring occurs when a company moves one or all of its
factories to another country. Offshoring provides access to
foreign markets and lower production costs, while avoiding
trade barriers. According to the US Commerce Department,
about 90% of the outcomes from US-owned offshore
factories is sold to foreign consumers.
 Service sector outsourcing is outsourcing “white-collar” jobs.
The text lists several examples companies outsourcing white
collar jobs. Historically, India has been a primary location for
IT outsourcing. However, as wages in India are beginning to
rise, many companies are beginning to outsource to the
Philippines, South Africa, Hungary, and the Czech Republic.
47
 Under the Lens: Ft article, “Modern Mexico
Reshoring: Location and young workforce
prove attractive”

• After manufacturing in China from 2000-2010,

Mexico is a destination for US companies
“reshoring”, as Chinese labor costs increase
• Mexico has reshoring advantages:
• a young, skilled workforce
• the right time zone for US companies
• successful industrial clusters

• A study warned that the country is squandering its

advantages because the government is not
promoting Mexico as a relocation destination

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 Service Sector Outsourcing

6-49
  2014 Global services location index ranks In a survey of the
global outsourcing landscape in 50 countries and those
countries’ potential across three major categories—financial
attractiveness, people skills and availability, and business
environment—A. T. Kearney consultants identified the top
countries for delivering IT, BPO, and voice services, shown
in Exhibit 6-8.
 The findings confirm that Asia continues to dominate, in
particular in India, due to its highly educated and English-
language staff availability. Latin America as a region also does
well, and Central Europe offers mature industry and highly
skilled workers.
50
 Management in Action: Strategic Planning
for Emerging Markets
 Increasing business opportunities for
companies wanting to set up operations in
or export to emerging markets

 Different countries are at different levels

of development and have different
risk/return profiles

 Usually entails higher risk

6-51
 Management in Focus: Strategic Planning
for Emerging Markets

 One size does not fit all: different

infrastructure, socio-economic and
regulatory challenges, different
environmental and geographic
constraints

 Potential for innovation, not just new

customers

6-52
 Top Three Strategic Objectives

6-34
 Number of Functions

6-54
New Strategies for Emerging Markets

6-55
 Operating Model for Emerging
Markets

6-37
 Disconnected Governance Model

6-38
 Step 6: Decide on Strategy

The strategic choice of one or more of the entry

strategies depends on:
•disadvantages
a careful evaluation of the advantages and
of each in relation to the firm’s
capabilities and resources

•critical environmental factors

• the contribution that each choice would make to
the over- all mission and objectives of the company

6-58
 The Influence of Culture on
Strategic Choice and Timing Entry
 China and Japan have longer-term time
horizons than the United States
 High uncertainty avoidance cultures (e.g.,
Latin American, African countries) prefer
non-equity modes of entry
 High power distance cultures (e.g., Arab
countries and Japan) tend to use more
equity modes of entry abroad

6-59