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Motivations for International Expansion

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less able with local politics. need many years in country to be most effective ... with access to distribution or knowledge of local customs, norms or politics ... – PowerPoint PPT presentation

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Title: 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

-
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

11
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

15
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)

19
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
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