Company Name

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INTERNATIONAL STRATEGY CREATING VALUE IN GLOBAL
MARKETS
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INTERNATIONAL STRATEGY
Overview of the Global Economy

• Globalization
• The increase in international exchange, including
  trade in goods and services as well as exchange
  of money, information, ideas, and information.
• The growing similarity of laws, rules, norms,
  values, and ideas across countries.

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Overview of the Global Economy

• Extremes in the effects of global capitalism
• The economies of East Asia have attained rapid
  growth and improved standards of living
• Income in Latin America grew by only 6 percent in
  the past two decades
• Average incomes in sub-Saharan Africa and the old
  Eastern European bloc have actually declined

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Porters Diamond of National Advantage
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INTERNATIONAL STRATEGY
Global Factors Affecting
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Nations Competitiveness

• Factor Endowments
• The nations position in factors of production,
  such as skilled labor or infrastructure,
  necessary to compete in a given industry.
• Demand Conditions
• The nature of home-market demand for the
  industrys product or service.

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Global Factors Affecting
a
Nations Competitiveness

• Related and Supporting Industries
• The presence or absence in the nation of supplier
  industries and other related industries that are
  internationally competitive.
• Firm Strategy, Structure, and Rivalry
• The conditions in the nation governing how
  companies are created, organized, and managed, as
  well as the nature of domestic rivalry.

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Factor Endowments

• To achieve competitive advantage, factors of
  production must be created
• Industry and Firm specific
• The pool of resources at a firms or countrys
  disposal is less important than the speed and
  efficiency with which the resources are deployed
• Firm-specific knowledge and skills created within
  a country that are rare, valuable, difficult to
  imitate and rapidly and efficiently deployed are
  the factors that create national competitive
  advantage

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Demand Conditions

• The demands that consumers place on an industry
  for goods and services
• Demanding consumers drive firms in a country to
• Meet high standards
• Upgrade existing products and services
• Create innovative products and services

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Related and Supporting Industries

• Enable firms to manage inputs more effectively
• Allow joint efforts among firms
• Share technical capabilities and infrastructure

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INTERNATIONAL STRATEGY
Firm Strategy, Structure and Rivalry

• Rivalry is intense in nations with conditions of
• Strong consumer demand
• Strong supplier bases
• High new entrant potential from related
  industries
• Competitive rivalry stimulates innovation and new
  means of achieving competitive advantage

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Firm Strategy, Structure and Rivalry

• Competitive rivalry increases the efficiency with
  which firms
• Develop within the home country
• Market within the home country
• Distribute products and services within the home
  country
• Firms faced with intense domestic competitive
  rivalry will often develop business strategies
  and structures allowing them to compete outside
  their domestic markets

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INTERNATIONAL STRATEGY
Porters Diamond of National Advantage Applied
to India
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INTERNATIONAL STRATEGY
Motivation for Companies to

Expand Internationally

• Increase the size of potential markets
• Attain economies of scale
• Take advantage of arbitrage opportunities
• Extend the life cycle of a product
• Optimize the physical location for every activity
  in its value chain

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INTERNATIONAL STRATEGY
Motivation for Companies to

Expand Internationally

• Optimizing the location for every activity in a
  firms value chain can result in
• Performance Enhancement
• Cost Reduction
• Risk Reduction

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INTERNATIONAL STRATEGY
Potential Risks of International Expansion

• Political and Economic Risk
• Social unrest
• Military turmoil
• Demonstrations
• Violent conflicts and terrorism
• Laws and their enforcement
• Unstable governments

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International Risk Rankings
Source Transparency International, 2010
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INTERNATIONAL STRATEGY
Corruption Perceptions Index (CPI)

• The Transparency International 2010 CPI ranks the
  most corrupt countries in the world
• The scores range from ten (least corrupt) to zero
  (highly corrupt)
• The five most corrupt countries are
• Somalia (CPI Score 1.1)
• Myanmar (CPI Score 1.4)
• Afghanistan (CPI Score 1.4)
• Iraq (CPI Score 1.5)
• Uzbekistan (CPI Score 1.6)

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International Risk Rankings
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Potential Risks of International Expansion

• Currency Risk
• Currency exchange fluctuations
• Appreciation (strengthening) of the US Dollar
• Government management of monetary policy and
  intervention in financial markets

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Potential Risks of International Expansion

• Management Risks
• Different culture
• Different customs
• Different language
• Different income levels / standard of living
• Country-specific customer preferences
• Less developed distribution system /
  infrastructure

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Global Dispersion of Value Chains

• Outsourcing
• Utilizing firms in other countries to perform
  value-creating activities that were previously
  performed in-house within the firms home country

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Global Dispersion of Value Chains

• Offshoring
• Shifting an activity that was previously
  performed in a domestic location to a foreign
  location.

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Achieving Competitive Advantage

in Global Markets

• Distinct global strategies emerge from the
  opposing pressures of Reducing Costs and Adapting
  to Local Markets
• Lowering unit costs maintains competitiveness in
  pricing in global markets
• May require locating facilities where a cost
  advantage can be achieved
• Adapting to local markets requires modifying
  product attributes to satisfy varying consumer
  preferences in different countries
• May add costs to differentiate products

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets

• International Strategy
• Based on diffusion and adaptation of the parent
  companys knowledge and expertise to foreign
  markets
• The primary goal of the strategy is worldwide
  exploitation of the parent firms knowledge and
  capabilities that foreign competitors lack
• Low degree of global adaptation
• Core competencies associated with centralized
  headquarters location
• Low pressures for local adaptation and lowering
  costs

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Achieving Competitive Advantage

in Global Markets

• International Strategy Strengths / Limitations

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Achieving Competitive Advantage

in Global Markets

• Global Strategy
• Competitive strategy is centralized and
  controlled largely by corporate administration
• Emphasizes achievement of economies of scale to
  lower global costs
• Pressure for adaptation is low and pressure for
  lowering costs is high

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Achieving Competitive Advantage

in Global Markets

• Global Strategy Strengths / Limitations

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Achieving Competitive Advantage

in Global Markets

• Multidomestic Strategy
• Emphasis is differentiating products and services
  to adapt to local markets
• Decision-making is more decentralized
• Pressure for local adaptation is high and
  pressure for lowering costs is low

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Achieving Competitive Advantage

in Global Markets

• Multidomestic Strategy Strengths / Limitations

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Achieving Competitive Advantage

in Global Markets

• Transnational Strategy
• Optimization of tradeoffs associated with
  efficiency, local adaptation, and learning
• Firms assets and capabilities are dispersed
  according to the most beneficial location for a
  specific activity
• Pressures for both local adaptation and lowering
  costs is high

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Achieving Competitive Advantage

in Global Markets

• Transnational Strategy Strengths / Limitations

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Global vs. Regional Expansion

• Advantages of regional vs. global expansion
• Geographic proximity
• Cultural, language, customer preference
  similarities
• Linked infrastructure and distribution
• Favorable trading relationships
• Most companies are involved in regional or
  bi-regional expansion, not global expansion

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Entry Modes of International Expansion
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Entry Modes of International Expansion

• Exporting
• Producing goods in one country to sell to
  residents of another country

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Entry Modes of International Expansion

• Exporting Benefits
• Simplest way to enter a market with least
  investment risk
• Foreign distribution partners facilitate entry
• Exporting Risks / Limitations
• Little control over local distribution practices
• Potential competition with other distributor
  products

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Entry Modes of International Expansion

• Licensing / Franchising
• Contractual agreement in which a company receives
  a royalty or fee in exchange for the right to use
  its intellectual property
• Restrictions on use of intellectual property are
  part of any licensing or franchising agreement

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Entry Modes of International Expansion

• Licensing or Franchising Benefits
• Low investment risk
• Avoid trade barriers and currency risk exposure
• Licensing or Franchising Risks / Limitations
• Loss of control
• Lower profits due to royalty / fees paid to
  licensee
• Intellectual property rights potentially at risk

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Entry Modes of International Expansion

• Strategic Alliances and Joint Ventures
• Partnership arrangements with foreign firms or
  other multinationals
• Strategic alliances usually are limited to
  resource sharing arrangements, marketing and
  distribution
• Joint Ventures involve the creation of a
  third-party enterprise with joint ownership
  and/or shared assets

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Entry Modes of International Expansion

• Strategic Alliances and Joint Ventures -Benefits
• Shared risks with less investment than
  wholly-owned subsidiaries
• Gain market or technical knowledge and operating
  expertise from partners
• Shared revenues and profits

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Entry Modes of International Expansion

• Strategic Alliances and Joint Ventures -
  Risks / Limitations
• Success usually requires the following
• Defined strategy that is mutually acceptable
• Defined responsibilities and contributions
• Mutual trust
• Unifying common culture
• Detailed procedures and documentation defining
  all aspects of the partnership arrangement

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Entry Modes of International Expansion

• Wholly Owned Subsidiaries
• A business in which a multinational company owns
  100 percent of the stock.

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Entry Modes of International Expansion

• Wholly Owned Subsidiaries - Benefits
• Provides greatest degree of control of all
  company activities
• Highest investment cost and risk but can lead
  to highest returns
• No revenue or profit sharing

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Entry Modes of International Expansion

• Wholly Owned Subsidiaries
  Risks / Limitations
• Highest investment risk assumed entirely by
  parent company
• Must go through learning curve relating to
  cultural, political and legal environment in the
  host country

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Case Analysis Marketing to the Bottom of the
Pyramid

• For years, companies focused on the upper portion
  of the income pyramid to market products
• Recently, more companies have found success
  marketing to the poorer populations of developing
  countries
• Micro Loans have become an industry in itself,
  catering to low income families wishing to start
  businesses
• Some companies, like Unilever, have modified
  packaging and item quantity marketed to low
  income customers to meet the restrictions of
  their standards of living

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Case Analysis India and the Diamond of National
Advantage

• Over one-fifth of Fortune 1000 companies
  outsource their software requirements to Indian
  firms
• Indian software exports have increased from 5.9
  billion in 2000 to a projected 80 billion in
  2010
• The Indian software industry has grown at a 25
  annual rate over the past decade
• More than 800 firms in India are involved in
  software services as their primary activity

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Case Analysis India and the Diamond of National
Advantage

• Software and IT firms in India are projected to
  employ 2.3 million people by 2010
• The IT sector is expected to contribute 7 of
  Indias GDP in 2010
• India has focused on educating students in IT to
  provide the labor resources necessary to staff
  this industry
• Global demand conditions for software continue to
  increase as more developed countries rely more
  heavily on complex software systems to increase
  efficiency
• India now has both the supplier base and
  competitive advantage against rivals in the
  software development industry

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Case Analysis India and the Diamond of National
Advantage
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Case Analysis How Wal-Mart Profits from
Arbitrage

• Wal-Marts above-average profitability has been
  attributed to factors such as superior logistics,
  strict overhead control, and effective use of
  information systems
• Wal-Mart is aggressively pursuing international
  expansion across the globe
• Another key factor in Wal-Marts success has been
  its ability to purchase large volumes of goods at
  very cheap prices, sourcing more and more from
  foreign countries such as China
• It is estimated that China alone may be supplying
  between 50 - 70 billion annually, generating
  savings of 16 - 23 billion annually

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Case Analysis How Deere Co. Learned From its
Indian Operations

• In an attempt to enter the Indian agricultural
  market for farm equipment, Deere engineered small
  no-frills tractors for he Indian market
• Deere didnt consider these basic tractors would
  appeal to US customers when it first introduced
  them to India
• Ironically, Indian manufacturer Mahindra was
  beginning to market small, basic tractors to US
  consumers needing basic features for their
  personal properties
• Deere has introduced slightly modified versions
  of its Indian tractor design for use in the US,
  with great success

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