04/21/23 1

Business Strategy & Policy PSU MGMT #562

Dave Gartendaveoutside@alum.mit.edu

International Strategy

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DeBeers CaseObjective: look at how monopoly power affects organizations & global industry -- how govt. policy & competitive forces seek to change it.

X

Learnings: Antitrust policy is ultimately tied to

consumers Even the most powerful

organizations have to react to a changing environment

It takes many years to bring down or build a powerful position.

Changing business models is frightening and risky – it is generally accompanied by resistance.

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Session Objectives

To Gain an Initial Understanding of: 1. Economic Value of International Strategies

(Why?)2. Options, Barriers and Approaches (What?)3. Execution Considerations (How?)4. Organizational Responsibilities (Who?)

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Int’l Growth Drivers (Why?)

Lowering of Intl BarriersImproving logistics infrastructureImproving communications infrastructureIncreasing standardsHeightened competition

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Why go International?

Source: Intel Annual Report, 2004

P&G: Steady int’l growth

Intel

0%

20%

40%

60%

80%

100%

Inte

lIB

MApple

P&G

Mat

su…

Philips

De Bee

rs

Mondav

i

APAC

EMEA

AmericasR

even

ue

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Int’l Strategy Drivers (Why?)

International Economies

of Scope

Gain access to new customersGain access to low-cost factors of production

Develop new core competencies

Leverage current core competencies in a new way

Manage corporate risk

Derived from: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 518

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Access to New Customers

Customer that are willing to buy

Customer that are able to buy

Target Market

Segmentation

Targeting

Market Growth

$

Product

Price

Place

Promotion

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Access to New Customers - Barriers

Tariffs Quotas Nontariff Barriers

Taxes levied on Imported Goods or Services

Quantity Limits on the Number of Products or Services that can be imported

Rules, Regulations, and Policies That Increase the Cost of Importing Products or Services

Import DutiesSupplemental DutiesVariable leviesBorder leviesCountervailing duties

Voluntary quotasInvoluntary quotasRestricted import licensesMinimum Import limitsEmbargoes

Govt. PoliciesGovt. procurement proceduresGovt. sponsored export subsidiesCustom policiesQuality standards

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Access to Supply Chain

Raw MaterialsLabor Manual Labor Knowledge Workers R&D

Technology

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Options, Barriers, and Approaches (What?)

What key issues must be addressed with your strategy?

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Challenges & Opportunities1. Heterogeneity across markets2. Scale and Complexity of Global

Operations3. Unpredictability of economic

conditions between countries (volatility)

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International Risk FactorsFinancial – Complexity, Variability Currency Credit Inflation

Political Risks Macro scale Micro scale

Relationship Risks Communication/Culture Objectives

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Execution Considerations (How?)

VRIO?

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ImitatorsDirect Duplication of International Strategy Will competing firms try?

Profits/market share motivate Are they able?

Substitutes Strategic alliances, diversification,

M&A

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Growth Strategies

New Business or

Competency

New Markets

Current Business or

Competency

Current Markets

High Risk

High or Low Risk

Moderate Risk

Moderate Risk

Access new customers

Do nothing

Access new customers with

new competencies

Develop new competencies or leverage current competencies in

new way

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Market entry options

Source: Berkowitz

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Organizational Considerations

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Int’l Strategy: Organization

Cost Efficiency

Loca

l R

esp

on

siven

ess

Global

Multinational

X

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Appropriate Organizational Structure

HighLow

Low

High

Importance of local

responsiveness

Importance of global integration

Decentralized federation

Coordinated federation

Centralized hub

Transnational federation

Source: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 546

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Organizational Structures

Decentralized federation

Centralized Hub

Coordinated federation

Transnational

•Full P&L

•High Autonomy

• Duplication

•Full P&L

•High Autonomy

• Some Centralized Strategy

• Less Duplication

•P&L

•Low Autonomy

• Execution Focus

• Centralized Strategy

• Less Duplication

•Full P&L

•Autonomy

• Some Centralized Strategy

• Regional specialization

• Global leverage of competencies

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Strategies for Emerging Markets

Then vs. Now Then: low cost production, opportunistic export/marketing. Now: revenue opportunities. Disposable income, reach of

media/internet

High risks: political, economic & infrastructure Distribution, market data, communications, instability/lack of

regulatory discipline, product diversion, counterfeiting, complex networks.

Yet…opportunities…each situation is unique General classification mask the complexities (ex: China GDP) Political and social systems, openness , product markets,

labor markets, capital markets

Corporate control very problematic basis of business/competition so different (Local norms vs.

MNC)

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Strategies for Emerging Markets

Convertibility of profit

Lon

g T

erm

Mar

ket P

oten

tial

Low High

Low

Hig

h Leading MarketsChina, India, Brazil

Aggressive Investments

Chile, Czech, South Africa

Platform InvestmentsRussia

Trailing MarketsSub-Saharan Africa

Source: New Strategies in Emerging Markets by David J Arnold and John A Quelch, SMR, 1998.

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Implications for International Strategy

Global expectations change the game Standards set at the global level -> launch

globally

Global sourcing Clusters of competitive advantage are dispersed

Suppliers, consumers, R&D, marketing, production

Productivity a key criteria for placement

Managed tension of global vs. local Commonality (efficiency) w/ local requirements Overseas assignments, frequent communication“A desk is a very dangerous place

from which to view the world…”