Douglas Reid

dreid@business.queensu.ca@douglasreidTwitter hashtag: #MBUS902

Distances, Strategies and Internationalization

Source: World Wealth Report, 2011; Globe and Mail, June 24, 2011

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Where do you want to go next?

Administrivia

Breaks at 345, 515 PM (Kingston time)

Slides at slideshare.com (search for MBUS902)and on portal – after class

Twitter hashtag #mbus902

Distances

Strategy responses

Why MNEs exist

Summary

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Virtual office hours

Assignment Q’s

Repetition

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Repetition

Customer willingness to pay

Cost of delivering

what the customer buys

Strategy

Increases willingness

to pay?

Meets hurdle rate for capital?

YesDo it!

Yes

Decreases cost?

No No

Meets hurdle rate for capital?

Yes Yes

No

Teach

No

Implementation happen primarily by changing the allocation of resourcesconsistent with objectives

Any non-human assetof an organization thata manager can deploy

Brands, equipment, IP, licenses, machinery, information, etc.

Money

People Skills

Time Duration, sequence and project choices to which you apply the money and people that you have

The Value Chain

Using the value chain

1. Understand what each category means

2. Decompose activities done by companies into categories

3. Do they raise WTP relative to cost?

4. If so, how to increase WTP?

5. If not, why? Can these activities be eliminated, or done by someone else,or done somewhere else?

In paired teams…

What are all the distances between you?

Do they matter?

Why?

What units of analysis?-Teams-Individuals

Fixed or changeable things?

Visible things or concepts?

Sensitive differences or socially easy ones?

Facts or beliefs?

Differences within or between?

Four types of distance matter in IB

Cultural distance

Administrative distance

Geographic distance

Economic distance

Different languages

Different ethnicities

Lack of connective social networks

Different religions

Different social norms

Absence of colonial ties

Absence of shared monetary or political association

Political hostility

Government policies

Institutional weakness

Physical remoteness

Lack of common border

Landlocked

Size of country

Weak transport’n or communication links

Climatic differences

Difference in consumer incomes

Differences in costs and quality of resources: Natural Financial Human Infrastructure Intermediate input markets Information or knowledge

Attrib

utes

Cre

ating

Dis

tanc

e

Source: Ghemawat, 2001

Distance Difference Cost Risk

Liability of foreignness

Globalization is about producing where it is most cost effective, sourcing capital from where it’s cheapest, and selling it where it is most profitable.

N.R. Narayana Murthy, Infosys, August 2003

Arbitrage focus: Value chain fragmentation

Cultural distance

Administrative distance

Geographic distance

Economic distance

Different languages

Different ethnicities

Lack of connective social networks

Different religions

Different social norms

Absence of colonial ties

Absence of shared monetary or political association

Political hostility

Government policies

Institutional weakness

Physical remoteness

Lack of common border

Landlocked

Size of country

Weak transport’n or communication links

Climatic differences

Difference in consumer incomes

Differences in costs and quality of resources: Natural Financial Human Infrastructure Intermediate input markets Information or knowledge

Attrib

utes

Cre

ating

Dist

ance

Source: Ghemawat, 2001

Arbitrage focus: CAGE

Taking on the costs of adjusting to differences arising from CAGE distances…

Then compete and win against host country firms

Adaptation

Local fit offsets liability of foreignness

Global advantages in increasing WTPKnowledge / skill creationBrand creation

Global advantages in cost reductionProcurement (volume)Scale production

Source: Khanna and Palepu

Adaptation: Use corporate strategy to fill institutional voids

Aggregation

Standardization

Adaptation

Similarity

Aggregate on Non-Country Bases

Channels

Client industries

Customer types

Culture

Administrative

Economic

Complex AAA Strategies

Why do multinational corporations exist?

Multinationals overcome

Differences

Cost

Risk

and compete with hostcountry firms.

But how?

Firm-specific advantage

Why Internationalize?

Resources (inputs)

Markets

Efficiency

Strategic assets

Others?

ADDING Helps Answer “Why?”

• Adding volume (growth)• Decreasing costs

• Differentiating (increasing WTP)

• Improving industry attractiveness (bargaining power)

• Normalizing (optimizing) risk

• Generating knowledge (or other capabilities)

Source: Ghemawat

] Scale advantages

Internationalization Process

Why

How

WhereWhat Locational attractiveness

Sum up… Twitter hashtag #mbus902

Virtual office hours

http://queensbusiness.adobeconnect.com/douglasreid/

Saturday, June 252:30 – 4:30 PM

Tuesday, June 297:00 – 9:00 PM

Backup will be Skype: dreid150

Questions about hand-ins, VOH, anything….?