ie 02. globalization & international environment 060912

International EntrepreneurshipInternational Entrepreneurship

Globalization & International Globalization & International EnvironmentEnvironment

Session 2

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Strategic Planning

RESOURCES &

OBJECTIVES

EVOLVING MARKET

OPPORUNITIES

LONG RUN LONG RUN PROFITABILITY PROFITABILITY AND GROWTHAND GROWTH

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Strategic Management Scope

To Achieve Company Objectives

External Business

Environment

Strategic Planning, Strategy and

Policies: Formulation,

Implementation and Evaluation

Senior Managers: Leadership and

Entrepreneurship

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Current Competitive Landscape

• A Risky Business World

• Investments required to compete on a global scale are enormous or massive.

• Consequences of failure are strict

• Important Elements of Success

• Developing strategy

• Implementing strategy

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Global Global economyeconomy

Rapid Rapid technologictechnological changeal change

Competitive Landscape

Strategic management among global and

innovative combatants

Strategic management among global and

innovative combatants

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Competitive Landscape: Hypercompetition

HypercompetitionHypercompetition

HypercompetitionA condition of rapidly escalating competition based on

• Price-quality positioning

• Competition to create new know-how and establish first-mover advantage

• Competition to protect or attack established product or geographic markets

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Global Economy• Global Economy

• Goods, people, skills, and ideas move freely across geographic borders

• Movement is relatively free-for-all by artificial constraints

• Expansion into global arena complicates a firm’s competitive environment

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Global Economy (cont’d)

Globalization

◦ Increased economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders

◦ Increased range of opportunities for companies competing in the 21st-century competitive landscape

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Country Competitiveness Rankings (Population over 20 Million)

Country 2002 2003United States 1 2Australia 2 3Canada 3 2Malaysia 4 6Germany 5 4Taiwan 6 7United Kingdom 7 5France 8 9Spain 9 8Thailand 10 10Japan 11 11China 12 12Brazil 13 0China 14 0Korea 15 10

Country 2002 2003Colombia 16 20Italy 17 14South Africa 18 16India 19 0India 20 17Brazil 21 15Philippines 22 18Romania 23 0Mexico 24 19Turkey 25 23Russia 26 21Poland 27 22Indonesia 28 25Argentina 29 26Venezuela 30 24

SOURCE: From World Competitiveness Yearbook 2003, IMD, Switzerland. http://www.imd.ch.wcy.esummary, April. Reprinted by permission. Table 1.1Table 1.1

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International Environment

The External Environment

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Dr. Triyono Arief Wahyudi - Strategic Management

General Environment

• Dimensions in the broader society that influence an industry and the firms within it:

• Demographic

• Economic

• Political/legal

• Sociocultural

• Technological

• Global

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Dr. Triyono Arief Wahyudi - Strategic Management

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TABLE The General Environment: Segments and Elements

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Industry Environment

• The set of factors directly influencing a firm and its competitive actions and competitive responses

• Threat of new entrants

• Power of suppliers

• Power of buyers

• Threat of product substitutes

• Intensity of rivalry among competitors

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Competitor Environment

• Gathering and interpreting information about all of the companies that the firm competes against.

• Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments.

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Analysis of the External Environments

• General environment

• Focused on the future

• Industry environment

• Focused on factors and conditions influencing a firm’s profitability within an industry

• Competitor environment

• Focused on predicting the dynamics of competitors’ actions, responses and intentions

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Opportunities and Threats• Opportunity

• A condition in the general environment that, if exploited, helps a company achieve strategic competitiveness.

• Threat

• A condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness.

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Technology and Technological Changes

Rate of change of technology and speed at which new technologies become available

◦ Continuous innovation—how rapidly and consistently new, information-intensive technologies replace older ones

◦ The development of troublemaking technologies that destroy the value of existing technology and create new markets

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Technological Change

The Information Age

◦ The ability to effectively and efficiently access and use information has become an important source of competitive advantage

◦ Technology includes personal computers, cellular phones, artificial intelligence, virtual reality, massive databases, electronic networks, internet trade

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Technological Changes

Increasing Knowledge Intensity

◦ Strategic flexibility: set of capabilities used to respond to various demands and opportunities in dynamic and uncertain competitive environments

◦ Organizational slack: the resources that allow the firm flexibility to respond to environmental changes

◦ Capacity to learn

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Entrepreneurship: Asia-Oceania

• Asia-Oceania performs poorly in seeking new market expansion, introducing new products, or using new technologies.

• New entrepreneurial businesses in the region are driven more by high growth in market opportunities for existing services, and less by the introduction of new services or innovative products

Transition Economies

Asia

APEC – The Asian Pacific Economic Cooperation

China

Three types of entrepreneurial ventures have emerged:• Township and village enterprises (TVE’s)• Sino-foreign joint ventures and wholly foreign-

owned subsidiaries• Collective of privately owned joint ventures

Entrepreneurship: European Union

• Entrepreneurial activity is directly linked to cultural support

• Generous employment protection and unemployment benefits reflect the low entrepreneurial

• EU has identified a need to enhance positive attitudes about entrepreneurship to further encourage entrepreneurial activity

• Need to deregulate and liberalize markets and to commercialize research

Globalization

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Globalization Defined

Globalization: Globalization: the ongoing social, economic, and the ongoing social, economic, and political process that deepens and broadens the political process that deepens and broadens the relationships and inter-dependencies amongst relationships and inter-dependencies amongst nations—their people, their firms, their nations—their people, their firms, their organizations, and their governmentsorganizations, and their governments

• International business facilitates globalization processInternational business facilitates globalization process• Four Dimension of Globalization Index are: Economic, Four Dimension of Globalization Index are: Economic,

Technological, Personal Contact, and Political Technological, Personal Contact, and Political

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International Business Defined

International business: International business: all commercial transactions all commercial transactions between parties in two or more countriesbetween parties in two or more countries• Private firms are profit-oriented.Private firms are profit-oriented.• Government organizations may or may not be Government organizations may or may not be

profit-oriented.profit-oriented.• The international business environment is The international business environment is

more complex and diverse than the domestic more complex and diverse than the domestic business environment.business environment.

Globalization and its challenges

Globalization – the removal of barriers to free trade and the closer integration of national economies – can be a force for good that has the potential to enrich everyone in the world, particularly the poor, but the way it has been managed (especially the international trade agreements) needs to be rethought. Joseph Stiglitz

Globalization has been “misgoverned”.

John K. Galbraith

Globalization Globalization mean is that the whole process is

potentially beneficial for development, as it saves resources, otherwise used for low efficient micro-management, but this process needs management by consciously prepared bodies – governments, international organizations, and above all, globalization needs a rules-based system, in which the interests of all – industrialized and poor nations alike – need to be taken into account and managed in a system that provides international public goods.

Globalization

• The Bretton Woods institutions are called to play a role in this international regime for the provision of public goods.

• A key role here belongs to the WTO and its binding rules, which need to take into account the interests of all, including the poorest developing countries.

• Stiglitz argues, the problem is that the rich industrialized countries have imposed their interests and this is why the international trade agreements have to be rethought.

Globalization

• What about e-trade. The same issue - the need for good management of international e-commerce - applies.

• The WTO has had informal discussions about e-commerce, but there is no real work on binding WTO rules is envisaged in this area.

• ICTs come as part of other binding agreements – services, and now there are negotiations on trade facilitation, which may include obligations to publish all trade procedures on the Internet, build Single electronic Windows for filing trade information, etc.

• In this sense, the WSIS, managed by other UN agencies has made attempts to establish some basic rules, including governance of the Internet and creation of a Solidarity Fund for ICT development in the developing countries.

•

THE FACE OF GLOBALIZATION

• Countries differ greatly in their globalization levels. ranks the 20 most global countries according to their overall globalization level as well as according to the four components that make up the Globalization Index developed by A. T. Kearney, a consultancy, and Foreign Policy magazine: economic integration, personal contact, technological connectivity, and political engagement.

THE FACE OF GLOBALIZATION

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Factors in International Business Operations

Figure shows the organization of materials in the text.

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The Forces Driving Globalization

1.1. Increased in and expansion of technologyIncreased in and expansion of technology2.2. Liberalization of cross-border trade and Liberalization of cross-border trade and

resource movementsresource movements3.3. Development of services that support Development of services that support

international businessinternational business4.4. Growing consumer pressuresGrowing consumer pressures5.5. Increased global competitionIncreased global competition6.6. Changing political situationsChanging political situations7.7. Expanded cross-national cooperationExpanded cross-national cooperation

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Criticisms of GlobalizationCriticisms of Globalization

• Threats to national sovereignty/ Threats to national sovereignty/ independenceindependence

• Economic growth and environmental Economic growth and environmental stressstress

• Growing income inequality and personal Growing income inequality and personal stressstress

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Why International Business Why International Business Differs from Domestic BusinessDiffers from Domestic Business

• Political and legal practicesPolitical and legal practices

• Cultural factorsCultural factors

• Economic forcesEconomic forces

• Geographic influencesGeographic influences

• Competitive factorsCompetitive factors

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International Business As A International Business As A Discipline for ManagersDiscipline for Managers

• Integrative disciplineIntegrative discipline borrowing from borrowing from Domestic and International Law, Political Domestic and International Law, Political Science, Anthropology, Sociology, Science, Anthropology, Sociology, Psychology, Economics, Geography and Psychology, Economics, Geography and BusinessBusiness

• Managers must have an Managers must have an International International MindsetMindset to succeed in global markets to succeed in global markets

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Global GovernanceGlobal Governance

• Politics/Peace- United NationsUnited Nations• Trade- World Trade Organization (WTO) World Trade Organization (WTO)• Money/Finance- International Monetary Fund International Monetary Fund

(IMF)(IMF)• Development- World BankWorld Bank• Overall- G8 Nations (USA, Canada, UK, G8 Nations (USA, Canada, UK,

France, Germany, Italy, Japan, and Russia)France, Germany, Italy, Japan, and Russia)• Other international organizations and bodiesOther international organizations and bodies

Why go International?

• Resource-rich countries (raw materials)

• Labor-rich countries (e.g. Mexico, Japan, India, Russia, etc.)

• Market-rich countries (e.g. China)

Reasons to Internationalize

Proactive Reasons• Increased Profit• Unique Goods or

Services• Technological

Advantage• Exclusive Market

Information• Owner-Manager Desire• Tax Benefits• Economies of Scale

Reactive Reasons• Competitive

Pressures• Declining Domestic

Demand• Overcapacity• Proximity to

Customers• Counterattack

Foreign Competition

Researching the Foreign Market

• Government Regulations

• Political Climate

• Infrastructure

• Distribution Channels

• Competition

• Market Size

• Local Customs and Culture

International Threats and Risks

• Ignorance and uncertainty• Lack of experience• Lack of information• Restrictions• Political risks• Economic risks• Financial risks

Key Questions and Resources

Why is the company interested in going international?

What does the foreign-market assessment reveal about the nature and functioning of the markets under investigation?

What specific market strategy is What specific market strategy is needed to tap the potential of this needed to tap the potential of this market?market?

International Entrepreneurship

• Venture capital and entrepreneurs fund less than 0.1% of the world’s entrepreneurs

• High-level VC funding accelerates the commercialization of new products and services and gives the US dominance is world markets.

• Ninety-one percent of VC invested in the US finances high technology companies, in contrast to only 29 percent in other nations

Entrepreneurship: Latin America

• Volatile economic conditions yield modest growth and income

• Government policies are not supportive and do not promote entrepreneurship activity

• Intellectual property rights protection is inadequate• Regulatory constraints, labor costs, and legal

regulations place a high burden on entrepreneurs• Access to technologies and international markets is

difficult• There is a strong need for improved management

skills and better consulting services

International EntrepreneurshipInternational EntrepreneurshipEntrepreneurship by Country

The needs to do entrepreneurial activities

Example 1: Qualcomm in China

Example 1: Qualcomm in China

Timetable• 1997-2000: China and Qualcomm go back and forth in

discussions on licensing Qualcomm’s technology

• December 2000: MOU with China's Ministry of Information Industry for CDMA

• January 2002: China Unicom first CDMA Deployment

• September 2002: Appointment of Three Senior Executives

• December 2002: QUALCOMM and China Unicom Sign Agreement to Form Joint Venture

• April 2003: China Unicom Nationwide Launch of CDMA2000

Example 2: Microsoft in Europe

Microsoft Research Cambridge• Established July 1997, now at ~75

researchers

European Science Initiative• Established July 2004• ‘new kinds’ of science and

computing…‘ambient intelligence’ where sensors, wireless networks and interactive, embedded computing are invisibly and seamlessly woven into people’s everyday life

Example 3: Microsoft in China

Asia Center for Interaction Design• Established November 2003• Rapid Prototyping: developing and

advancing the art of software prototyping• Information Visualization and

Management: user interface design, prototyping, and usability testing

• Lifestyle Gaming