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INDIAN INSTITUTE OF FOREIGN TRADE
INTERNATIONAL BUSINESS STRATEGY
COURSE COORDINATOR:
DR.K.RANGARAJAN
PROFESSOR
Why IBS ????• Why do firms go abroad? • What differentiates a "global" from a "multi-domestic" industry? • What distinguishes “Global Market” and “Global Industry”?• What are the dilemma in ‘configuring’ and ‘coordinating’ business
activities across the nations? • What are the strategic considerations when a company goes
beyond the home country? • Why and when do/should companies engage in cross-border
strategic alliances? • What are the associated risks and how to guard against them? • What potential roles can foreign subsidiaries play in an MNC's
global strategy? Etc …
The focus will be on Progressive Internationalization of Firms
Modules At GlanceSession Contents
Session I Globalisation of Markets & Competition History & Dimensions of IBPhenomenon of GlobalisationDrivers of globalization Diagnosing Industry Globalisation Potential
Session II Elements of Global StrategyGlobalisation ImperativesYip’s Globalisation Triangle and frameworkPorter’s & Prahalad’s framework Four Elements of Global Strategy
Session III Country Entry & AttractivenessEntry Strategies – Objectives, timing & modeCountry Attractiveness – Market & IndustryopportunitiesFacets of country risk analysis
Modules At Glance
Session Contents
Session IV & V Challenges of Synergy: Global Strategy & FunctionalStrategies
Issues in Marketing FunctionIssues in Finance functionOrganizing options & DesignsGlobal HR Wheel & issues
Session VI Role of Strategic Alliances in Global ExpansionLogicForms and Levels of AlliancesEvaluation & Problems
Session VII Future ChallengesGlobalisation in the Digital AgeFuture ScenariosFuture of Global Corporations
Evaluation Pattern:
The performance of the students will be evaluated on the following pattern:Criterion Weightage
• Term Project 30 %• Quizzes (2) 10 %• Case Analysis 20 %• ET (Case Based & Open Book) 40 %
Outline• History & Dimensions of IB• Globalization Phenomenon & Drivers• Why Global Strategy?• Domestic (vs) Global Strategy
Learning ObjectivesWhen you complete this module, you should
be able to : • Identify or Define:
– International business & its evolution– Multinational, Global corporation– Impact of Globalization process on Strategy
formulation
• Describe or Explain:– Globalisation and localisation factors– Differences between global and domestic
strategies
Historical Traces of International BusinessHistorical Traces of International Business
2000 BC - Mediterranean Trade (Mesopotamia, Greece, Phoenicia)
500 BC - Control by Greeks (Mass Production)
200 BC - Control by Romans (Venice and Genoa Ports)
16th Century - Mercantilist Theory emerged -> Spain & Portugal ->Seafaring Capacity
19th Centry - Industrial Revolution: First trace of MNC –Colt, Singer and JP Coats
20th Century - IB Established as an imperative, MNCs progressed rapidly
Before WW I:• International capital movements associated with population movements out of Europe•Majority of Portfolio Investments•UK was the largest creditor nation
Inter-war Period:•Decline of European Might•US became major creditor nation due to Direct Investment•Intl. Portfolio Investment declined due to 1930 Financial crisis
Post-war Period:•Phase I (1945-60):MNCs from UK & US dominatedConcentration on extraction of petro. and other RMs•Phase II (1961-70):Continental Europe & Japan’s Entry•Phase III (1971-90):European & Japanese firms have become important source of FDIUS become a major recipient of FDINICs started showing their impact•Phase IV (1991 onwards):FDI has become the corePatterns of investment, tech. Diffusion and trade among nations are shaped by agents of FDI – the MNCsAsia (esp. India & China) has become the focus point
Globalisation of the World EconomyGlobalisation of the World Economy
Sources UNCTAD, World Investment Report, 2005 and BIS, 2007
1982 1990 2006 Multiplier 2005/1982
World GDP ( Billion US$) 11760 21670 48000 4.08
Trade (Billions US$) 1900 3500 11900 6.2
Foreign Direct Investment Stocks (BillionUS$) 640 1780 12000 18.7
Sales of Foreign Affiliates of Multinational Firms (Billion US$) 2740 6125 25177 9.2
Employement of Foreign Affiliates of Multinational Firms (1000) 21500 25100 73630 3.4
Cross-Borders Mergers and Acquisitions (BillionUS$) 25 150 880 35
International Royalties Payments (Billion US$) 9 30 132 14.6
Foreign Exchange Transactions (Billion US$) 11000*
300000 1168000 105
* estimate
The Universe of Transnational Corporations (TNCs)The Universe of Transnational Corporations (TNCs)
Examples : # of affiliates Ford Unilever Siemens
1970 65 94 841985 140 146 165
2000 270 244 416
Source: UNCTAD, 2005
Total numbers of Multinational Corporations
37000 77000
Total number of Foreign affiliates 170000 770000
Total assets of Foreign Affiliates 5390 B$ 45600 B$
Total Sales of Foreign Affiliates 5727 B$ 22200 b$
Total Employement of Foreign Affiliates (Thousand)
24471 62000
1990 2007
Recent Changes in General Globalization Drivers
Some of the widespread changes include the following:
Market Drivers• Per capita income converging among industrialized nations
• Convergence of lifestyles and tastes (e.g., McDonald’s in India andStolichnaya vodka in America)
• Increasing travel creating global consumers
• Organizations beginning to behave as global customer
• Growth of global and regional channels (e.g.,Walmart (US) in 10Countries, Carrefour (France) in 31, Metro (Ger.) in21,& 7-eleven (Jap.) in 21 )
• Establishment of world brands (e.g., Coca-Cola, Levi’s, Microsoft)
• Push to develop global advertising (e.g. McCann's for Nestle & Gillette;Saatchi & Saatchi’s commercials for British Airways.
• Spread of Global & regional media (CNN,MTV,Star TV in Asia)
Cost Drivers
• Continuing push for economies of scale (but offset by flexible manufacturing)
• Accelerating technological innovation• Advances in transportation (e.g., use of Federal Express to
deliver urgent supplies from one continent to another)• Emergence of newly industrializing countries with productive
capabilities and low labor costs (e.g.., China, India, Indonesia etc.)
• Increasing cost of product development relative to market life
Recent Changes in General Globalization Drivers…
Government Drivers• Reduction of tariff barriers (e.g., NAFTA,FTAs)• Reduction of non-tariff barriers (e.g., Japan’s gradual
opening of its markets)• Creation of trading blocs (e.g., EU etc)• Decline in role of governments as producers and
customers (e.g., denationalization of many industries inEurope, China, India etc.)
• Privatization in previously state-dominated economies,particularly in Latin America
• Shift to open market economies from closed communistsystems in Eastern Europe & Soviet
• Increasing participation of China and India in the globaleconomy
Recent Changes in General Globalization Drivers…
Competitive Drivers• Continuing increase in level of world trade• More countries becoming key competitive battlegrounds (e.g.,
rise of Japan to become a “lead” country)• Increased ownership of corporations by foreign acquirers• Rise of new competitors intent upon becoming global
competitors(e.g.,Japanese(70s),Koreans(80s),Taiwanese(90s),Chinese(00s), Indian & Russian (10s).
• Rise of ‘born global’ companies.• Growth of global networks making countries interdependent in
particular industries ( eg.,electronics)
Recent Changes in General Globalization Drivers…
Other Drivers• Revolution in information and communications
(e.g.,personalcomputers,mobiletelephony, internetetc.)
• Globalization of financial markets (e.g., listing ofcorporations on multiple exchanges, and issuing debtin multiple currencies)
• Improvements in business travel (e.g., improved airtravel and rise of international hotel chains)
Recent Changes in General Globalization Drivers…
Historically Corporate Historically Corporate Globalization Globalization took place in 3 stagestook place in 3 stages
Export(Trade)
Internationalisation(Multinational)
Global Integration(Global)
ELEVATORS in EUROPEELEVATORS in EUROPE
R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P MR
P
M
R
M MP
PM M M
MM M
P
GIS 4
ELEVATORS in EUROPEELEVATORS in EUROPE
Why Companies Globalize?
Customer ValueCV
PROFIT
Internal CostsC
Supplies (S)
Costs
Volume (V)
Get Access to resources and procurement(S)
Increase Size benefit from Economies of Scale (C)
Increase Size (V): Capture market opportunities
Get access to low cost labor and infrastructure (C)
Get access to knowledge (CV and C)
Serve global customers (CV)
Reduce risks through geographical diversification
Price
GLOBAL INDUSTRIESGLOBAL INDUSTRIES
Global industries are industriesin which firms can sustain competitive advantages only if :
• They are present in the key countries of the world
and• They integrate and coordinate their activities across the world on a centralized manner.
LOCAL INDUSTRIESLOCAL INDUSTRIES
Local industries are industries in which firms can sustain competitive within the boundaries of countries.
Firm competing in multilocal industries Are either:• Domestic firms within each country
•Subsidiaries of multinational companies operating independently of each others in the respective countries
Industries: Global or Local ?
Factors Pushing for Globalization
• Similar Needs & Customers Behavior• Standardized Products• Beyond country economies of scale • Speed of Innovation• Transferability of experience• “Global” customers• “Global” pricing• “Global” competitors
• Low entry barriers• High Scale Technology• Convergence of consumption• Transport
• Cultural Differences• Customer proximity• Transport costs• Legal requirements
• Different Needs & Customers Behavior• Customized Products/services• Low economies of scale • Complex distribution• Transferability of experience• “Local” customers• High transport costs
Factors Against Globalization
Characteristics of Global Industries Characteristics of Local Industries
HIGH
GLOBALFORCES
LOW
LOW HIGH
LOCAL FORCES
DIFFERENT INDUSTRIES HAVE DIFFERENT COMPETITIVE REQUIREMENTS
Civil Aircraft
Microprocessors
Bulk Chemicals
Catering
Automobile
TelecommunicationEquipments
Package Tours
Retail Banking
FoodRetail
Paint
Corporate BankingInstitutional Banking
WITHIN BUSINESSES DIFFERENT SEGMENTS HAVEDIFFERENT COMPETITIVE REQUIREMENTS
HIGH
GLOBALFORCES
LOW
LOW HIGH
LOCAL FORCES
AUTOMOTIVE
AIRCRAFT
MARINE
CAR
INDUSTRIAL
DO IT YOURSELF
PAINTS
HIGH
GLOBALFORCES
LOW
LOW HIGHLOCAL FORCES
WITHIN BUSINESSES DIFFERENT FUNCTIONS HAVEDIFFERENT BENEFITS OF BEING "GLOBAL" or "LOCAL"
Research
Finances
Development
After SalesServices
Logistics
Components Sourcing
Components Manufacturing
Marketing
Accounting
Customers ServicesSales
Advertising
The Globalization Debate
International – business is operating in more than one country
Multinational – business is operating in several countries with some decentralization of management decision making to overseas subsidiaries and little coordination of activities across national boundaries
Global & Transnational – business operating in several countries and configure, coordinate and control all such activities
(Transnationality is by the equity stake of a business operating away from the home country –UNCTAD)
Globalization of Market – converging commonality (homogeneity in terms of tastes & preferences)
Globalization of Industry – the extent to which the value addition activities in the industry are configured and coordinated globally
Global Strategy
o A global core competence giving access to global markets
o Extensive participation in major world markets
o Global configuration of value adding activities which exploits both national similarities and integration of activities
o Local responsiveness, where required
o Differentiated structure and organization
Domestic (vs.) Global Strategy:
• Greater scale and scope of activities
• More alternatives for configuration Of VA Activities
• More scope for competitive advantage
• More subjected to cultural and lingual activities
• Wider economic and factor conditions
Imperatives of Globalization
Growth Imperative-Paperindustry
Globalization of Competitors-Fuji & Kodak
Knowledge Imperative-GE India
Efficiency Imperative-Mercedes Benz
Globalization of Customers-GE Plastics following AT & T
High FDIHigh foreign investmentIn dispersed activitiesWith a high degree ofCo-ordination amongSubsidiaries.
Country Focused Stgy.Companywith several nationalSubsidiaries each operating in only one Country
Global strategy(with extensive co-Ordination andConcentration)
Export StrategyStrategy based uponExporting of product/Service with decent-ralized marketingIn each host country
GeographicallyDispersed
Geographically concentrated
Configuration of activities
High
Porter’s Model
Low
Coordination of
activities
High
Low
Global businesses: Global markets, global integrated strategy requiring
global management
Local responsivebusiness strategy based
on local markets, national subsidiaries
Product EmphasisMultifocal Business
Area emphasis
Pressures for Global Integration
Low High Pressure for local responsivenessThe Integration-Responsiveness Matrix
Position and Resources of Business and Parent
Company
Industry Globalization Drivers
• Market• Cost• Government• Competitive
Benefits/Costs of Global
Strategy
Global Strategy Levers• Global Market Participation• Global Products• Global Location of Activities• Global Marketing• Global Competitive Moves
Organization’s Ability to Implement a Global
Strategy
Yip’s Framework for Global Strategy
Strategic Considerations in Internationalisation
• Choice of Products• Choice of Markets• Choice of Entry• Implementing Entry Choice• Action in the Local Market (Home & Host
Country Customers)• Speed of Global Expansion
A Framework for choice of products:Attractiveness of product Lines as Launch Vehicles for Initial Globalization
2
Moderately attractive
1Most attractive(Marriott full-
Service Lodging)
3Moderatelyattractive
4Least attractive(Marriott Senior Living Services)
Low High
Expected Payoffs from Globalization
Drivers of a Market’s Strategic ImportanceDrivers of a Market’s Strategic Importance
Low High
Low
Learning Potential
A Framework for Choice of Markets
Phased-in entry (create
Beachhead first)
Ignore for now
OpportunisticEntry
Rapid Entry
Low HighFirm’s ability to
Exploit the Market
Alternative Modes of Entry
Honda’s initialEntry into the U. S. market
Champion International’s paper exports through
independent brokers
KFC’s franchises in India
Ford-Mazda Genenetch-Hoffman
LaRoche
Bridgestone’sAcquisition of
U. S.-basedFirestone
100% Export 100% LocalExports versus Local Production
Greenfield vs. Cross-border Acquisition
Green fieldoperations
or cross-borderacquisitions
Cross-borderAcquisitions(Int’l Paper’s
entry into Europe)
Greenfieldoperations
or cross-borderacquisitions
Greenfield operations (Nucor’s
entry into Brazil)
Low High
Hig
h
Uniqueness of Corporate Culture
Impa
ct o
n L
ocal
Com
petit
ion
SONY’S GLOBAL DEVELOPMENT
Regional HQs Functions Transnational move
Marketing confederation
Central hubORGANISATION
R&D outside Japan Shortening PLC
Assembly plants Local content
USA as key market audio + TV
INVESTMENTS
USA – JAPAN – EUROPE - ROWPOSITIONING
GLOBAL LEADER ENTERTAINMENT
MARKETSPRODUCTSMatch markets/ production
INNOVATIONAggressiveOverseas markets penetration
AMBITION
GLOBAL DIVERFICATION
GLOBAL LOCALISATION
LOCALISATIONEXPORT
Phase IV1989
Phase III1980
Phase II1970-1980
Phase I1960-1970
Video Audio
Hard
Soft
Acquisitions
GLOBAL STRATEGY
GLOBAL AMBITION
GLOBALPOSITIONING
GLOBAL ORGANISATION
GLOBAL BUSINESS SYSTEM
Relative importance of region and countries in terms of sales, assets
Choice of:- Countries- Value proposition
- Global structure- Global processes- Global co-ordination- Global human resource
management
- Investments in resources, assets and competencies to create a global value chain
- Development of global capabilities through alliances and acquisitions
Global Strategy Framework
Europe North America Asia Pacific Rest of the World(%) (%) (%) (%)
Advertising 19 57 23 1Clothing & Footwear 32 27 25 15Computer Hardware 27 27 39 7Construction materials 18 9 63 10Consumer Electronics 30 23 38 9Cosmetics 37 22 27 14Data Processing Services 29 52 14 9Electrical Appliances 28 27 34 10Electrical Equipments 23 20 42 15Environment Services 31 39 23 7Health Care Equipment 34 46 18 2Home Furnitures 44 22 18 15Insurance 34 38 25 3Mobile Phones 30 25 42 3Paint & Coatings 26 27 35 12Pharmaceuticals 28 48 18 6RetailIing 32 30 23 15Specialty Chemicals 45 39 11 4
Global Distribution of Markets (2005)
AMBITIONAMBITION
Market Driven/ Resources Driven
Market Driven Resources Driven
Capture Growth Opportunitiesof the region to expand global sales
Capture resources(Natural, Human,Knowledge) for globalcompetitiveness
AMBITIONAMBITION
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 20% 40% 60% 80% 100%
NORTEL
NOKIA
MOTOROLAALCATEL
ERICSSON
Ratio of Foreign Sales /Total Sales
Ratio of Foreign Assetss /Total Assets
Circle proportional to Total sales
AMBITIONAMBITION
Measuring Globalisation
Measuring Globalisation
AMBITIONAMBITION
Unctad: WIR, 2006
Mapping of Global ambition
Global Player
RegionalDominant Global Player
Global Revenue Index (GRI)
RegionalPlayer
0
Global Sourcer
1
Global Exporter Exporter
1
0
20
40
60
80
100%
0 20 40 60 80 100%
BridgestonGoodyear
Michelin
Pirelli Tyres
GlobalCapability
Index (GCI)
Global Revenue Index (GCI)
Measuring Globalisation
AMBITIONAMBITION
Mapping of the consumer electronics industry
%
Global Revenue Index (GRI)
100
0
20
80
60
40
200 10040 60 80%
MATSUSHITA
THOMSON
PHILIPS
SONY
The evolution of Whirlpool globalisationG
loba
l Cap
abili
ty In
dex
(GC
I)
Global Revenue Index (GRI)
%
100
100
0
20
80
60
40
20 40 60 800%
1990
1980
1999
Global PositioningIt consists of two types of choices: Choice of Countries
& Defn. of value prop.
Choice of Countries:
Key Countries – Size, growth, quality of HR etc are critical for companies LT competitiveness. Japan, Korea in Auto sector.
Emerging Countries – Countries exhibiting high growth rate. China, India, Poland, Brazil.
Platform Countries – serve as hub for setting up regional centers that are platforms for further development.
Marketing Countries
Sourcing Countries
KEY COUNTRIES: Have to be there
EMERGING COUNTRIES (WINDOW OF OPPORTUNITIES) : Its time to go there
PLATFORM COUNTRIES: ENTRY and SUPPORT
MARKETING COUNTRIES : No need to invest/ Only sales
SOURCING COUNTRIES: Manufacturing base /source of Raw materials/ Purchasing Office
Geographical PositioningGeographical PositioningCountries PortfolioCountries Portfolio
GLOBAL POSITIONING
Ciba Fine Chemicals
GLOBAL POSITIONING
Ciba Fine ChemicalsGLOBAL
POSITIONING
Customer’s needs
Similar(Global Segments)
Different(Local Segments)
Minimun Size Of
Production
High(Global Scale)
Low(Local Scale)
GLOBALSTANDARDISATION
AircraftMicroprocessors
BasicChemicalsPulp and paper
Electronic Componernts
MODULARSTANDARDISATIONAnd MULTIBRANDS
ElevatorIT ServicesBeer
LOCALADAPTATION
FoodsConsulting Services
PROCESSSTANDARDISATION
Cement
Example: Intel, DellExample: Otis, SAB
Example: CemexExample: Carrefour
Standardised or LocalisedStandardised or Localised ??
GLOBAL POSITIONING
GLOBAL POSITIONING
THE THREE DIMENSIONS OF GLOBAL COMPETITIVE POSITIONING
Global Standardisation
Local Adaptations
Competeon Costs/priceAdvantages
Competeon Differentiated/valueAdvantages
Multiple Segments
Single Segment
GLOBAL POSITIONING
THE THREE DIMENSIONS OF GLOBAL COMPETITIVE POSITIONING
Global Standardisation
Local Adaptations
Competeon Costs/priceAdvantages
Competeon Differentiated/valueAdvantages
Multiple Segments
Single Segment
Wal Mart
Carrefour
Dairy Farm(in Asia)
Global Positioning
Global niche players
Standard Adaptive
Differentiated Cost Leader Differentiated Cost leaderStandardised niche differentiator
Low-cost standardised niche
Differentiated niche adapter
Low-cost niche adapter
Example:Swatch, Intel
Example:Acer
Example:McDonald
Example:Carrefour
Global Positioning
Broad Global players
Standard Adaptive
Differentiated Cost Leader Differentiated Cost leader
Broad niche differentiator
Broad standardised cost leader
Broad adaptive differentiator
Broad adaptive cost leader
Example:SONY
Example:Matsushita
Example:Unilever P&G Philips
Example:Electrolux
Global Business System
It consists of decomposing the value chain elements that are spread and integrated across the world.
To what extent do business units share resources, assets and competencies on order to optimise synergies? What are the corporate priorities in resource allocation among businesses?
R & D
Procurement
Manufacturing
Marketing
Sales
STAGE MODEL OF INTERNATIONAL DEVELOPMENTSTAGE MODEL OF INTERNATIONAL DEVELOPMENT
EXPORT LOCALISATION GLOBAL
AgentLocaldistributor
Localdistributor
Marketingsubsidiaries
Marketingsubsidiaries Subsidiaries
WhollyOwnedJointVentures
Assembly
BuyingOffice
Assembly
Components
SourcingLocalPlant
Local+Regional+GlobalPlants
Subsidiaries SubsidiariesSubsidiaries
Adaptation
Development
ISD 2
MULTINATIONAL
Time
Value Chain
Numberof Countries
BuyingOffice
BuyingOffice
BuyingOffice
Global Configuration of the Value ChainGlobal Configuration of the Value Chain
R & D Procurement Manufacturing Marketing GeneralManagement
GLOBALCENTRES
REGIONALCENTRES
LOCALUNITS
ResearchDevelopment
SourcingProduction Marketing Customers
Services
•Global
•Regional
•Local
- Central R & D- Technology
Strategy- Core Technology- Core Products- Technology
conferences- Technological
intelligence
- Regional Productsdevelopment
- Regionalintelligence
- Regional seminars
- Local Laboratories
- Global factories- Global materials
flow- Process Engineering- Central sourcing
- Regional factories- Regional sourcing
- Local production- Local sourcing
- Global marketing
strategy- Global
communication - Global productsManagement
- Regional Accounts- Regional Bidding
- Distribution- Promotion- Sales
Finances H.R.M
- Policies- Procedures- Informationsystem
- Regionalcustomerssupport
- Logistics- Maintenance
- After salesservices
- CorporateFinance
- Global Treasury
- Control
- Regional Debt financing
- RegionalControl
- Local borrowing
- InternationalH.R.M
- Regionalcareers
- Training
- Local careers- Local
GIS 35
Components of a Global Value ChainComponents of a Global Value Chain
Building GlobalCompetitive Advantages
TRANSFERRABILITY of COMPETITIVE ADVANTAGESWhat is the value of our existing advantages on local
markets? To what extend do we need to adapt our products and
management approaches?What new capabilities need to be acquired and how?
Our CompetitiveAdvantages
To what extendThey are
transferrable
Which newCapabilities to create and how?
Customer’s needs
Similar(Global Segments)
Different(Local Segments)
Source ofCompetitive Advantages
Technical TRANSFER withLiitle adaptation
TRANSFER andADAPT
ADAPT andRECREATE
TRANSFERAnd ADAPT
Ex: Unilever
Example: Mc Donald’s Example: Carrefour
Transferrability of Competitive Transferrability of Competitive Advantages and Business model ?Advantages and Business model ?
Mirror image of Positioning
Social, CulturalPolitical, Contextual
ex: Dell, Intel..)
Global Organization
It is the design of an orgainsational architecture which is able to support and implement the global ambition, global positioning and global business system .
EXPORT LOCALISATION GLOBALMULTINATIONAL
SingleBusiness
Multiple Business
HQ
Country Subsidiaries and Agencies
Regions
HQ
Country Subsidiaries and Agencies
FunctionsOperations
Marketing and Sales
Domestic Export
HQ
HQ
Division II
Division III
Operations
Domestic
Marketing and Sales
Export
Division I DivisionsInternational
Country Subsidiaries and Agencies
Division III
Division II
Division I
OperationsDomestic
HQ
OperationsDomestic
HQ
DivisionsInternational
Country Subsidiaries and Agencies
HQ
Regions
Division I
Division II
Division IIICountry Subsidiaries and Agencies
HQ
Division I
Division II
Regions Regions
Global Strategic Development and OrganisationGlobal Strategic Development and Organisation