WHAT IS INTERNATIONAL
EXPANSION?
International expansion strategies are
strategic plansthat businesses use multilevel to
enter anand
overseas market, establish a growing presence,
become quickly profitable. When composed properly,
these plans make growth more structured and
sustainable.
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• WHAT IS GLOBAL MARKET
OPPORTUNITY?
• Global market opportunity refers to
favorable combination of
circumstances,
timing locations,
that offer prospectsor for exporting,
investing, sourcing, or partnering in foreign
markets.
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Global business opportunities include:
• marketing products and services;
• establishing factories or other production
facilities to produce its offerings more
competently or cost effectively;
• procuring raw materials or components,
services of lower cost or superior quality;
• entering into collaborative arrangements
with
foreign partners.
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The Why, Where, and How of
International Expansion
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• The allure of global markets can
mesmerizing. be that operate
Companies
highly competitive or in nearly
markets at home, for instance, are saturated
drawn to
look overseas for expansion. But overseas
expansion is not a decision to be made
lightly, and managers must ask themselves
whether the expansion will create real value
for shareholders.
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• Why International Expansion?
• Companies embark on an expansion
strategy for one or more of the following
reasons:
• To improve the cost-effectiveness of their
operations
• To expand into new markets for new
customers
• To follow global customers
Where to Expand? - .
As companies look for growth in new are. of
the
world, they typically prioritize whi --untries to
enter. Because many markets loo appealing due
to their market size or low-cost production, it is
important for firms to prioritize which countries to
enter first and to evaluate each country's relative
merits.
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How to Expand?
• International market due diligence involves analyzing foreign markets for their
potential size, accessibility, cost of operations, and buyer needs and practices to
aid the company in deciding whether to invest in entering that market.
• Regional Differences
• To understand the regional differences within the country and to not view
the country as a monolith.
• Understanding Local Consumers
• Entering a market means understanding the local consumers and what
they look for when making a purchase decision. In some markets, price is an
important issue.
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Steps and Missteps in
International Expansion
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• Common mistakes that firms make
when entering a new market include not
doing thorough research prior to entry,
not understanding the competition, and
not offering a truly targeted value
proposition for buyers in the new
market.
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Components
of
PESTEL
(Political, Economic,
1
Sociocultural,
- 1111:1'1.'
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-
Technological,
-· ,=:nvironmental, and
Le al
• PESTEL analysis is an important and widely
used tool that helps show the big picture of a
firm's external environment, particularly as
related to foreign markets.
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3 Steps in PESTEL Analysis:
• Consider the relevance
• Identify and categorize information
• Analyze the data and draw conclusions
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• Political Factors
• The political environment have a
can significant influence on
businesses
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• How stable is the political environment in the prospective
country?
• What are the local taxation policies? How do these affect your
business?
• Is the government involved in trading agreements, such as the
European Union (EU), the North American Free Trade
Agreement (NAFTA), or the Association of Southeast Asian
Nations (ASEAN)?
• What are the country's foreign-trade regulations?
• What are the country's social-welfare policies?
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• Economic Factors
• Managers also to
need macroeconomic consider will
factors that effects onhave
term and long-term near
the success of
their strategy.
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• What are the current and forecast interest rates?
• What is the current level of inflation in the prospective country? What
is it forecast to be? How does this affect the possible growth of your
market?
• What are local employment levels per capita, and how are they
changing?
• What are the long-term prospects for the country's economy, gross
domestic product (GDP) per capita, and other economic factors?
• What are the current exchange rates between critical markets, and
how will they affect production and distribution of your goods?
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• Sociocultural Factors
• The social and cultural influences on
business vary from country to country.
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• What are the local lifestyle trends?
• What are the country's current demographics, and how are
they changing?
• What is the level and distribution of education and income?
• What are the dominant local religions, and what influence do
they have on consumer attitudes and opinions?
• What is the level of consumerism, and what are the popular
attitudes toward it?
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• Technological Factors
• The critical role of technology is discussed in
more detail later in this section. For now, suffice
it to say that technological factors have a major
bearing on the threats and opportunities firms
encounter.
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• To what level do the local government and industry fund
research, and are those levels changing?
• What is the local government's and industry's level
of interest and focus on technology?
• How mature is the technology?
• What is the status of intellectual property issues in the local
environment?
• Are potentially disruptive technologies in adjacent
industries creeping in at the edges of the focal industry?
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• Environmental Factors
• The environment has long been a factor in firm
strategy, primarily from the standpoint of access
to raw materials. Increasingly, this factor is best
viewed as both a direct and indirect cost for the
firm.
• What are the local environmental issues?
• Are there any pending ecological or environmental issues
relevant to your industry?
• How do the activities of international activist groups (e.g.,
Greenpeace, Earth First!, and People for the Ethical
Treatment of Animals [PETA]) affect your business?
• Are there environmental-protection laws?
• What are the regulations regarding waste disposal and
energy consumption?
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• Legal Factors
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• Reflect
' the laws and regulations relevant to
the region and the organization. Legal factors
can
include whether the rule of law is well
established, how easily or quickly laws
regulations may change, and what theand costs of
regulatory compliance are.
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• What are the local government's regulations regarding
monopolies and private property?
• Does intellectual property have legal protections?
• Are there relevant consumer laws?
• What is the status of employment, health and safety, and
product safety laws
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PESTEL
And
Globalization
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• A PESTEL analysis examines a target market
current state and possible trends.
• understand external environment
• Globalization factors are categorized into four,
namely: markets, costs, governments,
and competition.
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Factors Favoring
- - ·- · . Industry
Globalization
• Importing is a stealth form of international
entry, because the factors that favor
globalization can also lead to a higher level
of imports, and inputs can be sourced from
anywhere they have either the lowest cost,
highest quality, or some combination of
these characteristics.
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• Markets
0 Homogeneous customer
0 needs Global customer needs
o Global channels
0 Transferable marketing approaches
• Costs
0 Large-scale and large-scope economies
o Learning and experience
o Sourcing efficiencies
o Favorable logistics
o Arbitrage opportunities
0 High research-and-development (R&D) costs
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• Governments
o Favorable trade policies
o Common technological standards
o Common manufacturing and marketing
regulations
• Competition
o Interdependent countries
o Global competitors Adapted from Michael E.
Porter, Competition in Global Industries
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The Five Common
International
Expansion
Entry Modes
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• Type of Entry • Advantages • Disadvantages
• Low control, low local knowledge,
• Exporting • Fast entry, low risk potential negative environmental
impact of transportation
• Less control, licensee may become
• Licensing and Franchising • Fast entry, low cost, low risk a competitor, legal and regulatory
environment (IP and contract law)
m~ust be sound
• Higher cost than exporting,
• Shared costs reduce investment
• Partnering and Strategic Alliance licensing, or franchising; integration
needed, reduced risk, seen as local
problems between two corporate
entity
cultures
• Fast entry; known, established • High cost, integration issues with
• Acquisition
operations home office
• Gain local market knowledge; can • High cost, high risk due to
• Greenfield Venture (Launch of a
be seen as insider who employs unknowns, slow entry due to setup
new, wholly owned subsidiary)
locals; maximum control time
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The Inputs into
CAGE Analysis
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• CAGE Analysis is comparing a possible target
market to a company's home market on
the geography,
dimensions of culture, administration,
and economy.
• CAGE Analysis offers a broader view of distance
and provides another way of thinking about location
and the opportunities and risks associated with
global arbitrage.
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• Cultural distance: This refers to the cultural norms,
values and social beliefs, also known as the
unwritten rules, that shape the behavior of
individuals and organizations.
• Administrative distance: This refers to differences
in history and politics among countries, especially
those which do not share colonial ties.
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• Geographic distance: It refers only to the
not
physical distance between two countries, but also a
country's physical size, whether it shares borders
with hostile or non-hostile neighbors, and access to
trade routes such as the ocean and other
topographical features.
• Economic distance: Two of the biggest
determinants of economic distance are the Cost of
Labor and level of Consumer wealth between
countries.
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Pankaj "Megawatt" Ghemawat is an international
strategy guru who developed the CAGE framework to
offer businesses a way to evaluate countries in terms
of the "distance" between them. He formulated CAGE
Analysisin order to help the company to
institutional identify voids, which might otherwise
internationalization
frustrateefforts. These institutional
differences are important to the that
extent absence of specialized the can
intermediaries
transaction costs just as their presence can raisereduce
them.
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Institutional Voids
The absence of key specialized intermediaries found in
the markets of finance, managerial talent, and products, which
otherwise reduce transaction costs.
Three Ways on Handling Institutional Voids
1. Adapt its Business Model
2. Change the Institutional Context
3.Stay Away
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The History and
Role of Scenario
Planning and
Analysis
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What is Scenario Planning and Analysis?
A process of analyzing possiblefuture events
by considering alternative possible outcomes
(scenarios).
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SWOT (strengths, weaknesses, opportunities,
threats)
A strategic management tool that helps an
organization take stock of its internal characteristics
(strengths and weaknesses) to formulate an action
plan that builds on what it does well while overcoming
or working around weaknesses and assess external
environmental conditions (opportunities and threats)
that favor or threaten the organization's strategy
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Scenario planning was developed in the 1950s by
Shell as a tool for integrating changes and
uncertainties in the external context into overall it
strategy. Today ranks among the top ten
management tools in the world in terms of usage.
Scenarios are complex, dynamic, interactive
stories told from a future perspective.
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The six steps in formulating a scenario plan are the
following:
1. choose the target issue, scope, and time
frame that the scenario will explore
2. brainstorm a set of key drivers and
decision factors that influence the scenario;
3. define the two dimensions of greatest uncertainty;
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The six steps in formulating a scenario plan are the
following:
4.detail the four quadrants of the scenarios with
stories about that future;
5.identify indicators that could signal which scenario is
unfolding; and
6. assess the strategic implications of each scenario.
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Driving Forces for Change:
• Trends are forces for change whose direction and
sometimes timing can be predicted.
• Uncertainties forces for change whose direction
and pace are largely unknown-are more important
for your scenario.
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