environment perspective business
-
Upload
priyanka-kansal -
Category
Documents
-
view
218 -
download
0
Transcript of environment perspective business
-
8/12/2019 environment perspective business
1/36
INTERNATIONALSTRATEGY
ENVIRONMENT PERSPECTIVE
-
8/12/2019 environment perspective business
2/36
KNOWLEDGE OBJECTIVES1. Identifying International Opportunities: Incentives to use
an International strategy2. Explore the four factors that lead to a basis for
international business-level strategies.
3. Define the three international corporate-level strategies:multidomestic, global, and transnational.
4. Choices of International Entry Mode
5. Strategic Competitive outcomes6. Risks in an International Environments
-
8/12/2019 environment perspective business
3/36
Profiting From Global ExpansionEarning high returns from transferring
distinctive competencies to foreign markets.Realizing location economies
Using lower-cost locations reduces overall costsand fosters product differentiation for premiumpricing.
Moving down the experience curve
Larger global markets = more accumulated volume.Global expansion and business-level
strategiesLinked by cost reductions and value creation.
-
8/12/2019 environment perspective business
4/36
Pressures for Cost Reduction and LocalResponsiveness
Pressures for cost reductionsGlobal competitors seek to minimize unit coststhrough location economies and attain low-cost
competitor status.In commodity-type product industries, intense pricecompetition predominates strategic concerns.
Pressures for local responsiveness arise from:
Differences in local consumer tastes andpreferences.Differences in infrastructure and traditionalpractices.
Differences in distribution channels amongcountries.
-
8/12/2019 environment perspective business
5/36
Pressures for Cost Reduction and LocalResponsiveness
-
8/12/2019 environment perspective business
6/36
StrategicCompetitivene
ssOutcomes
HigherPerformanceReturns
Innovation
Use CoreCompetence
Modes ofEntry
Exporting
Establishmentof New Sub.
Licensing
StrategicAlliances
Acquisition
ExploreResources &
CapabilitiesInternational
Strategies
InternationalBus.-LevelStrategy
MultidomesticStrategy
GlobalStrategy
TransnationalStrategy
IdentifyInternational
Opportunities
IncreasedMarket Size
Return onInvestment
Economiesof Scale andLearning
LocationAdvantage
ManagementProblems, Risk,and
First Steps
ManagementProblems, Risk,and First Steps
International Strategy Opportunities & Outcomes
IncreasedMarket Size
Return onInvestment
Economiesof Scale andLearning
LocationAdvantage
-
8/12/2019 environment perspective business
7/36
IDENTIFY INTERNATIONALOPPORTUNITIES
Mainly for three reasons firms go international1. Lower Production cost
E.g. :- Clothing, Electronics, watch making
2. To secure needed resourcesE.g.:- Gems & Jwellery (Europe:- Roseyblu, Eurostar),Minerals and Energy
3. To extend a product`s life cycleE.g.:- Bajaj Auto (Sri Lanka, Bangladesh & China)
-
8/12/2019 environment perspective business
8/36
Benefits of International StrategiesIncreased market size.
Greater returns on major capital investmentsor new products or processes.
Greater economies of scale, scope orlearning.
A competitive advantage through location.
-
8/12/2019 environment perspective business
9/36
1. INCREASED MARKET SIZEExpand the size of potential market
Ex. General motors- Asia, Pharmaceutical Firms(85% Firms)- FDI- China
Firms competing in Domestic markets havelimited growth opportunities
Ex. Pepsi and Coca-cola
Invest in R&D to build competitive advantaagesEx. Ranbaxy in Africa
-
8/12/2019 environment perspective business
10/36
2. RETURN ON INVESTMENTLarge markets needs heavy investment
Ex.: R&D, Plant and capital
Reverse Engineering
Above average return on Investments
-
8/12/2019 environment perspective business
11/36
3. ECONOMIES OF SCALE ANDLEARNING
Economies of scale:- Refers to reduction in unitcost by producing a large volume of a product
Firm can standardize products across countryBorders
Ex. Production and R&D across country---Pepsi &coke
Allow price their product competitively to gainmarket share
Ex. Automobile Industry such as Toyota, GM
Exploit core competencies in international
-
8/12/2019 environment perspective business
12/36
-
8/12/2019 environment perspective business
13/36
IdentifyInternational
Opportunities
ExploreResources &
Capabilities
Use CoreCompetence
StrategicCompetitivene
ssOutcomesInternational
StrategiesModes of
EntryIncreasedMarket Size
Return onInvestment
Economiesof Scale andLearning
LocationAdvantage
InternationalBus.-LevelStrategyMultidomesticStrategy
GlobalStrategy
TransnationalStrategy
Exporting
Establishmentof New Sub.
Licensing
StrategicAlliances
Acquisition
HigherPerformanceReturns
Innovation
International Strategy Opportunities &utcomes
ManagementProblems, Risk, and
First Steps
ManagementProblems, Risk,and First Steps
-
8/12/2019 environment perspective business
14/36
International StrategiesInternational Business Level Strategies
International Corporate Level Strategies
Multi-domestic StrategyGlobal StrategyTransnational Strategy
-
8/12/2019 environment perspective business
15/36
Strategies
International Low CostUsually located in home countryExport to international marketsLow value added operations in foreign countries
High value added operations in home countryInternational Differentiation
Countries with advanced or specialized factor conditionsmost likely to use this strategy
Example: Japan, Germany, U.S.
-
8/12/2019 environment perspective business
16/36
Strategies
International Focus StrategiesTechnologically advanced firms follow focused low coststrategyFocused differentiation firms compete on the basis of image& designThird group competes on low price by imitating
International Integrated Low Cost/DifferentiationCan be most effective in dealing with diverse marketsOften relies upon flexible manufacturing, total qualitymanagement or rapid communication networks
-
8/12/2019 environment perspective business
17/36
Corporate-Level InternationalStrategies
Type of Corporate Strategy selected will have animpact on the selection and implementation of thebusiness-level strategiesSome Corporate strategies provide individualcountry units with flexibility to choose their ownstrategiesOthers dictate business-level strategies from thehome office and coordinate resource sharingacross unitsThree
Corporate
Strategie
Multi-Domestic Strategy
Global Strategy
Transnational Strategy
-
8/12/2019 environment perspective business
18/36
Multi-domestic Strategy
Strategy and operating decisions aredecentralized to strategic business units (SBU) ineach country.Products and services are tailored to localmarketsBusiness units in each country are independentof each other
Assumes markets differ by country or regions
Focus on competition in each market
-
8/12/2019 environment perspective business
19/36
Global Strategy
Products are standardized across nationalmarketsDecisions regarding business-level strategies arecentralized in the home office
Strategic business units (SBU) are assumed tobe interdependentOften lacks responsiveness to local marketsRequires resource sharing and coordination
across borders (which also makes it difficult tomanage)
-
8/12/2019 environment perspective business
20/36
Transnational Strategy
Seeks to achieve both global efficiency and localresponsiveness
Difficult to achieve because of simultaneousrequirements for strong central control andcoordination to achieve efficiency and localflexibility and decentralization to achieve localmarket responsiveness
Eg.FORD
-
8/12/2019 environment perspective business
21/36
-
8/12/2019 environment perspective business
22/36
MULTIDOM
-ESTICSTRATEGY
HIGH
LOW
HIGHLOW
NEED FOR LOCAL RESPONSIVENESS
NEED FORGLOBAL
INTEGRATION
-Strategy
When is each strategyappropriate?
-
8/12/2019 environment perspective business
23/36
GLOBALSTRATEG
Y
MULTIDOM-ESTIC
STRATEGY
HIGH
LOW
HIGHLOW
NEED FOR LOCAL RESPONSIVENESS
-Strategy
When is each strategyappropriate?
NEED FORGLOBAL
INTEGRATION
-
8/12/2019 environment perspective business
24/36
GLOBALSTRATEG
Y
TRANSNATI-ONAL
STRATEGY
MULTIDOM-ESTIC
STRATEGY
HIGH
HIGHLOW
When is each strategyappropriate?
-Strategy
NEED FORGLOBAL
INTEGRATION
NEED FOR LOCAL RESPONSIVENESS
LOW
-
8/12/2019 environment perspective business
25/36
IdentifyInternational
Opportunities
ExploreResources &
Capabilities
Use CoreCompetence
StrategicCompetitiveness
OutcomesInternational
StrategiesModes of
EntryIncreasedMarket Size
Return onInvestment
Economiesof Scale andLearning
LocationAdvantage
InternationalBus.-Level
StrategyMultidomesticStrategy
GlobalStrategy
TransnationalStrategy
Exporting
Establishmentof New Sub.
Licensing
StrategicAlliances
Acquisition
HigherPerformanceReturns
Innovation
ManagementProblems, Risk,and
First Steps
ManagementProblems, Risk,and First Steps
International Strategy Opportunities & Outcomes
-
8/12/2019 environment perspective business
26/36
Choice of International Entry Mode
Common way to enter new international markets.No need to establish operations in other nations.Establish distribution channels throughcontractual relationships.May have high transportation costs.May encounter high import tariffs.May have less control on marketing and
distribution.Difficult to customize product.
Exporting
-
8/12/2019 environment perspective business
27/36
Choice of International Entry Mode
Firm authorizes another firm to manufacture &sell its productsLicensing firm is paid a royalty on each unitproduced and sold.Licensee takes risks in manufacturinginvestments.Least risky way to enter a foreign market.
Licensing firm loses control over product quality &distribution.Relatively low profit potential.
Licensing
-
8/12/2019 environment perspective business
28/36
Choice of International Entry Mode
Enable firms to shares risks and resources toexpand into international ventures.Most joint ventures (JVs) involve a foreign corp.with a new product or technology & a hostcompany with access to distribution or knowledgeof local customs, norms or politics.May experience difficulties in merging disparatecultures.May not understand the strategic intent ofpartners or experience divergent goals.
Eg. Maruti udyog and suzuki.
Strategic Alliances
-
8/12/2019 environment perspective business
29/36
Choice of International Entry Mode
Enable firms to make most rapid internationalexpansion.Can be very costly.Legal and regulatory requirements may presentbarriers to foreign ownership.Usually require complex and costly negotiations.Potentially disparate corporate culture.
Acquisitions
-
8/12/2019 environment perspective business
30/36
Choice of International Entry Mode
Most costly & complex of entry alternatives. Achieves greatest degree of control.
Potentially most profitable, if successful.Maintain control over technology, marketing anddistribution.May need to acquire expertise & knowledge that is
relevant to host country.
New Wholly-Owned Subsidiary
Could require hiring host country nationals orconsultants at high cost.
-
8/12/2019 environment perspective business
31/36
The Advantages and Disadvantages of Different Entry Modes
Entry Mode Advantages Disadvantages
Exporting Ability to realize location andexperience-curve economies
High transport costs Trade barriers Problems with local marketing agents
Licensing Low development costs and risks Inability to realize location andexperience-curve economies
Inability to engage in global strategic
coordination Lack of control over technology
Franchising Low development costs and risks Inability to engage in global strategiccoordination
Lack of control over quality
Jointventures
Access to local partners knowledge Shared development costs and risks
Political dependency
Inability to engage in global strategiccoordination
Inability to realize location andexperience-curve economies
Lack of control over technology
Wholly ownedsubsidiaries
Protection of technology Ability to engage in global strategic
coordination Ability to realize location and
experience-curve economies
High costs and risks
-
8/12/2019 environment perspective business
32/36
Strategic Competitiveness Outcomes
International diversification facilitates innovationin the firm.Provides larger market to gain more and fasterreturns form investments in innovationMay generate resources necessary to sustain alarge-scale R&D program.Generally related to above-average returns,assuming effective implementation andmanagement of international operations.International diversification provides greater
economies of scope and learning.
-
8/12/2019 environment perspective business
33/36
Risks in the International Environment
POLITICAL RISK
ECONOMIC RISK
Political instability in indonesiabrought about by continuing ethnicstrife
Uncertain future of peace in themiddle east because of changes innational leaders
Failure of the european unionsquest for economic superpowerstatus because of inter-countrydisagreements
Chinas difficulty in enforcingintellectual property rights on CDssoftware,etc.,
Russias struggle with lowproductivity, currency problems andhigh unemployment
Exchange rate exposure due to theU.S.-conadian dollar fluctuations
-
8/12/2019 environment perspective business
34/36
Major Risks of International DiversificationPolitical Risk
National government instability may createpotential problems for internationallydiversified firms.
Potential changes in attitudes or regulationsregarding foreign ownership.Legal authority obtained from previous
administration may become invalid. Potential for nationalization of firms assets.
-
8/12/2019 environment perspective business
35/36
Major Risks of International Diversification
Econ. risks are interdependent with political risks.Differences and fluctuations in internationalcurrencies may affect value of assets & liabilities.
This affects prices & thus ability to compete.Differences in inflation rates may affect inter-nationally diversified firms ability to compete. Enforcing intellectual property rights on CDs,
software, etc.
Economic Risk
-
8/12/2019 environment perspective business
36/36
THANK YOU