Title: Motivations for International Expansion
1Motivations 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
5The Search for Growth
6What kind of business model effectively serves
the needs of consumers?
- understand the market pyramid to avoid becoming a
small, high-end niche player
7What 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
8Will 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
10International Entry Strategies
- Exporting
- Licensing
- Strategic Alliances
- Acquisitions
- Wholly-owned subsidiary
11Exporting
- 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
12Licensing
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
13Strategic 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
14Acquisitions
- 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
15New 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
16International 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)
17Multi-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
18Global 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)
19Transnational 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.
20Transnational 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
21PGs 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