Motivations for International Expansion

1
Motivations for International Expansion

• Economies of Scale or Learning
• Expanding size or scope of markets helps to
  achieve economies of scale in manufacturing,
  marketing, RD or distribution
• Can spread costs over a larger sales base
• Increase profit per unit
• Examples Japanese electronics or automobile
  manufacturers

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2

• Return on Investment
• Large investment projects may require global
  markets to justify the capital outlays
• Weak patent protection in some countries implies
  that firms should expand overseas rapidly in
  order to preempt imitators
• Example Aircraft manufacturer Boeing

3

• Location Advantages
• Low cost markets may aid in developing
  competitive advantage
• May achieve better access to
• Raw materials Key customers
• Lower cost labor Energy
• Key suppliers Natural resources
• Benchmarking products and technology in a
  state-of-the-art market

4

• Retaliation against a global competitor

5
The Search for Growth
6
What kind of business model effectively serves
the needs of consumers?

• understand the market pyramid to avoid becoming a
  small, high-end niche player

7
What kind of business model effectively serves
customers? (contd)

• Rethink price-performance
• consumers are much more focused on
  price-performance
• Rethink brand management
• dont overestimate Westernization
• Rethink costs of market building
• changing developed habits is difficult and
  expensive
• Rethink product design
• must reflect differences in use, distribution,
  and selling
• Rethink packaging

8
Will Local or Expatriate Leadership be most
effective?

• Expatriates are effective because they
• transfer technology and management practices
• conduits of information
• provide credibility at HQ
• But, they also have problems, such as
• cultural and language difficulties limit
  interaction with locals and effectiveness
• less able with local politics
• need many years in country to be most effective

9

• Locals have different abilities, such as
• better appreciation of local nuances
• deeper commitment to market
• But,
• need share of voice
• many not have soft technology

10
International Entry Strategies

• Exporting
• Licensing
• Strategic Alliances
• Acquisitions
• Wholly-owned subsidiary

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Exporting

• Advantages
• No need to establish operations in other
  countries
• Establish distribution channels through
  contractual relationships

• Disadvantages
• May have high transportation costs
• May encounter high import tariffs
• May have less control on marketing and
  distribution
• Difficult to customize products

12
Licensing
Firm authorizes another firm to manufacture and
sell its products. Licensing firm is paid a
royalty on each unit produced and sold.

• Advantage
• Least risky way to enter a foreign market because
  licensee takes risks in manufacturing investments

• Disadvantages
• Licensing firm loses control over product quality
  and distribution
• Relatively low profit potential
• Risk if licensor learns technology and competes
  when license expires

13
Strategic Alliances
Most involve a foreign company with a new product
or technology and a host company with access to
distribution or knowledge of local customs, norms
or politics

• Advantage
• Enable firms to shares risks and resources

• Disadvantages
• Difficulties in merging disparate cultures
• May not understand the strategic intent of
  partners
• Divergent goals
• Costs of expatriate managers
• Who owns what?
• Local partners may not have adequate market
  knowledge

14
Acquisitions

• Advantage
• Very Rapid

• Disadvantages
• Can be very costly
• Legal and regulatory requirements may present
  barriers to foreign ownership
• Usually require complex and costly negotiations
• Potentially disparate corporate cultures

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New Wholly-Owned Subsidiary

• Advantages
• Achieves greatest degree of control
• Potentially most profitable, if successful
• Maintain control over technology, marketing and
  distribution

• Disadvantages
• Most costly and complex of entry alternatives
• May need to acquire expertise and knowledge that
  is relevant to host country
• Could require hiring host country nationals or
  consultants at high cost

16
International Corporate Strategy When is each
strategy appropriate?
High
Need for Global Integration
Low
Low
High
Need for Local Market Responsiveness

• Pressures for Global Integration
• commodity-type products
• products that serve universal needs (tires,
  steel, hand-held calculators)
• industries with excess capacity
• when consumers are powerful and face low
  switching costs

• Pressures for Local Mkt Responsiveness
• Differences in consumers tastes and preferences
• Differences in infrastructure or conventional
  practices
• Differences in distribution channels
• Demands of host government (e.g.., local content
  regulations)

17
Multi-domestic Strategy

• Strategy and operating decisions are
  decentralized to strategic business units (SBU)
  in each country
• Products and services are tailored to local
  markets
• Business units in each country are independent of
  each other
• Focus on competition in each market
• Autonomy can create complex reporting lines
• Prominent strategy among European firms due to
  broad variety of cultures and markets in Europe

18
Global Strategy

• Products are standardized across national markets
• Decisions regarding business-level strategies are
  centralized in the home office
• Strategic business units (SBU) are assumed to be
  interdependent
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination across
  borders (which also makes it difficult to manage)

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Transnational Strategy

• Seeks to achieve both global efficiency and local
  responsiveness
• HQ takes strategic responsibility in some
  decision areas, subs dominate in others.
• National subs provide HQ with more competitive
  intelligence and learn about world competitors
  from the experiences of other subs.
• Subs fight retaliatory battles on behalf of a
  larger strategy and develop information systems,
  decision protocols, and performance measurement
  systems to weave global and local perspectives
  into tactical decisions.

20
Transnational Strategy (contd)

• Difficult to achieve because of simultaneous
  requirements for strong central control and
  coordination to achieve efficiency and local
  flexibility and decentralization to achieve local
  market responsiveness
• Must pursue organizational learning in both
  directions (HQ--gtsubs, subs--gtHQ) to achieve
  competitive advantage

21
PGs Vizir Launch

• Company built on its administrative heritage of
  highly motivated, entrepreneurial subsidiary
  companies in each country, didnt deny it
• Worldwide learning capability is an important
  source of competitive advantage
• ability to sense needs or opportunities for
  change
• ability to develop effective responses
• ability to implement change throughout the
  organization