International Entry Modes and Strategy

Touareg Passat Jetta Beetle Golf

EngineGermanyHungary

GermanyPolandMexico

Mexico Hungary

Transmission Japan JapanArgentina

JapanArgentina

JapanArgentina

Final Assembly

Slovakia Germany Mexico Mexico Brazil

Country of Origin for VW Models Sold in U.S.:Major Components and Final Assembly

VW Jetta

TransmissionsJapan

AssemblyMexico

EnginesPoland

CustomersU.S.

Reasons to “Go Global”Proactive Reasonso Exploit factor-cost

differences across countries

o Unique producto Technological advantageo Economies of scaleo Growing foreign marketso Exclusive informationo Attack rivals on home turf

Reactive Reasonso Competitive pressureo Overcapacityo Declining domestic

saleso Saturated home marketo Under attack from

foreign rivals

Going Global: Effect on Bottom Line

ROI

% Foreign Sales/Total Sales

Foreign Market Entry Modes

Export Licensing Joint Venture WOS

Acquisition Greenfield

Entry Mode Framework

Mindset Country-market opportunity/cost analysis

Stand-alone Attractiveness Strategic Importance

Resources-Control-Risk tradeoff

Mindset and International Activity International

Overseas activities support / subordinate to domestic activities

Multinational Flexibly adapting value-creating activities on

country-by-country basis; nationally-responsive Global

The world is the market; standardization Transnational

“Glocalization” – Some value-creating activities standardized/globalized, others localized

Entry Mode Decision Matrix

Hi

Lo

HiLo

Str

ateg

ic I

mpo

rtan

ce

of C

ount

ry

Stand-alone Attractivenessof Country

Lo

Hi

Resource

s,

Control,

Risk

Country-Market AnalysisStand-alone attractiveness:

–Size–Growth–Product acceptance / segmentation–Cultural similarity–Risk–Policy incentives–Other factors? ….MNC “power”?

Country-Market AnalysisStrategic importance:

–Home market of global customer–Home market of global rivals–Significant market of global rivals–Major source of innovation–Demanding/sophisticated customers–Factor-cost advantages

Resources-Control-Risks Resources

$$, time, technology, machinery, people, organizational, strategy

Control Operational and strategic discretion over

value-creating activities Risks

Political, F/X, economic, cultural, dissemination

Control Extent of involvement:

Channel control / ownership:

Ship Product

Marketing

Distribution

After-salesSupport

Mfg.

ExportAgent

ImportAgent

RegionalWhsle.

LocalWhsle.

Retail

Entry Mode Decision Framework

Licensing

Exporting Intermediaries

Direct

Joint Venture

Wholly-owned Subsidiary

Control Resources Risk Dissem. Low LowLow

High HighHigh Low

High

Entry Mode Decision Matrix

Hi

Lo

HiLo

Str

ateg

ic I

mpo

rtan

ce

of C

ount

ry

Stand-alone Attractivenessof Country

Lo

Hi

Resource

s,

Control,

Risk

General Electric and International Involvement

GE Product Divisions: Light bulbs Aircraft engines Appliances Power-generation

GE Market Opportunity: North America Europe Pacific rim / Asia Emerging markets

GE’s Markets, Entry and Strategy ChoicesP

rodu

ct L

ines

Country-Markets Internatio

nal

Strateg

y

4

3

2

1

A B C D

Entry Mode Decision Matrix

Hi

Lo

HiLo

Str

ateg

ic I

mpo

rtan

ce

of C

ount

ry

Stand-alone Attractivenessof Country

Lo

Hi

Resource

s,

Control,

Risk

Procter & Gamble

Pan-European Brand Development

P&G Multidomestic Strategy

UK

GermanyFrance

Italy

Neth.

Product Characteristics MapHigh Washing Temp

FabricSoftener

BleachAdditives

EnzymaticStain

Removers

Product Characteristics MapHigh Washing Temp

FabricSoftener

BleachAdditives

EnzymaticStain

Removers

Italy

Spain

ItalyExcludedcountries

P&G “TransEuro” Strategy

UK

GermanyFrance

Italy

Neth.

Spain

Zone 1

Zone 2

No problem taking a sack.

I’ll just use Vizir after the game.

Gotta keep this sweaty Tarheel off

my clean uniform…

I’m out of Vizir.

Epilogue VIZIR was precursor to “Liquid Tide” in US

– Great irony is: P&G’s struggle to develop “Euro-brand” first found success in another large, integrated market…the U.S.

– The VIZIR experience facilitated learning/cross-fertilization w/in P&G worldwide

– Developed “world-class” technology and product development capabilities worldwide

Industry Globalization

o What is a global industry? Why?o Which drivers/factors most important?o How does a global industry compare with a multi-

domestic one?o How is the extent of globalization “measured”?o What are the implications for firms’ international

strategies?

Globalization Drivers

o Market Driverso Cost Driverso Government Driverso Competitive Drivers

Low

Multi-domestic

High

Global

Definitions

Multi-domestic –Many-country view of the international

marketplace–Value chain activities are performed in the

local country-market and are adapted to local tastes, preferences, needs, etc.

DefinitionsGlobal

–A whole world-level view of the international marketplace, the world is the market

–Value chain activities are standardized and are performed in country locations according to efficiency, favorable policies, knowledge, resources, etc.

DefinitionsTransnational

–A “glocal” level view of the international marketplace – has some global, some local elements

–Some value chain activities are standardized and are performed in country locations others are nationally-adapted and performed in the local market

Market Globalization Drivers

o Common customer needso Global customerso Global market channelso Transferable marketing

Strength of Market Drivers

Low High

Baked Goods

Book Publishing

Retail Banking

Toothpaste

Soft Drinks

Automobiles

Computers

Aircraft

Multidomestic Global

Cost Globalization Drivers

o Global scale economieso Sourcing efficiencieso Factor of production differenceso High product development costso Rapidly changing technology

Strength of Cost Drivers

Low High

Baked Goods

Retail Banking

Toothpaste

Soft Drinks

Automobiles

Computers

Aircraft

Pharmaceuticals

Multidomestic Global

Government Globalization Driverso Unrestrictive trade and investment policieso Compatible technical standardso Common marketing regulations

Strength of Government Drivers

Restrictive Loose

Baked Goods

Retail Banking

Toothpaste

Soft Drinks

Automobiles

Computers

Airlines

Pharmaceuticals

Multidomestic Global

Competitive Globalization Driverso High two-way trade / cross-border FDIo Global competitorso Interdependence among countries

o Trade/Investment PoliciesoRole of WTO, etc.

Strength of Competitive Drivers

Low High

Baked Goods

Retail Banking

Toothpaste

Soft Drinks

Automobiles

Computers

AircraftPharmaceuticals

Multidomestic Global

International StrategyoGlobalization drivers – Assess dual

pressures:• Global efficiency - standardization• National/local responsiveness - adaptation

oLocation/configuration of value-creating activities

o Integration/coordination of value-creating activities

Effective Standardization

Coca-Cola’s “transnational polar bears”

McDonald’s “Big Mac”

Effective Adaptationo Campbell’s non-condensed soups in

the UK

o P&G single-use shampoo packages in India

Effective “Transnationalization”

o Barbie is 51 years oldo Sold in 130 countrieso National adaptations:

• Physical features• Costumes• Activity sets

o Standardized physique:• Scaled to 6’2”, 110 lbs.

Globalization Drivers

o Market Driverso Cost Driverso Government Driverso Competitive Drivers

Low

Multidomestic

High

Global

International Strategy:Managing Dual Pressures

Pre

ssur

es f

or G

loba

l Eff

icie

ncy

Pressures for Local Responsiveness

High

Low

HighLow

Value ChainLocation and standardization/adaptation

Infrastructure

Technology Development

Procurement

Human Resource Management

InboundLogistics Operations

OutboundLogistics Marketing Service

ProfitMargin

Value Chain

Infrastructure

Technology Development

Procurement

Human Resource Management

InboundLogistics Operations

OutboundLogistics Marketing Service

ProfitMargin

Headquarters

Value Chain

Infrastructure

Technology Development

Procurement

Human Resource Management

InboundLogistics Operations

OutboundLogistics Marketing Service

ProfitMargin

Upstream

Headquarters

Value Chain

Infrastructure

Technology Development

Procurement

Human Resource Management

InboundLogistics Operations

OutboundLogistics Marketing Service

ProfitMargin

Upstream Downstream

Headquarters

Value Chain Sub-functions (Marketing)Infrastructure

Technology Development

Procurement

Human Resource Management

InboundLogistics Operations

OutboundLogistics Marketing Service

ProfitMargin

Advert. Pricing Distrib. Packaging

Value Chain Configuration

o Geographic location of value chain activities – Concentrated/centralized vs.

dispersed/decentralized

Value Chain Coordinationo Cross-border linkages between dispersed value-

creating unitso Coordination = Flows of:

– $– Product (finished and intermediate)– Technology– People– Information (market data, strategic direction, etc.)

o Highly coordinated vs. only money flows

International Strategy:Managing Dual Pressures

Pre

ssur

es f

or G

loba

l Eff

icie

ncy

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

Export Strategy(same as Export entry mode)

U.S.

Germany

Mexico

Malaysia

International Strategy:Managing Dual Pressures

Pre

ssur

es f

or G

loba

l Eff

icie

ncy

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

??

MultidomesticStrategy

Multidomestic Strategy

U.S.

Germany

Mexico

Malaysia

International Strategy:Managing Dual Pressures

Pre

ssur

es f

or G

loba

l Eff

icie

ncy

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

??

MultidomesticStrategy

GlobalStrategy

Global Strategy(Textbook Variety)

U.S.

Germany

Mexico

Malaysia

International Strategy:Managing Dual Pressures

Pre

ssur

es f

or G

loba

l Eff

icie

ncy

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

??

MultidomesticStrategy

GlobalStrategy

TransnationalStrategy

Transnational Strategy (v.1)

U.S.

Germany

Mexico

Malaysia

Transnational Strategy (v.2)

U.S.

Germany

Mexico

Malaysia

Transnational Strategy (v.3)

U.S.Germany

Mexico

Malaysia

Engines

Final Assembly

Trim, seats,glass

Steel

VW International Strategy - Jetta

Germany

Japan

Mexico

Poland

Transmission

Final Assembly

Engine

Misc.

U.S.Marketing

McDonald’s Identity

McDonald’s Transnational MenuUS Brazil Canada India Germany

Big Mac French Fries Coca-Cola McNuggets McAloo Tikki McRib McBier McLobster McCalebresa PitaMac McFarmer

McDonald’s Site Selection and StoresUS -- Colorado

McDonald’s Site Selection and Stores

Bangkok,Thailand

McDonald’s Site Selection and StoresMoscow, Russia

Hamburger UniversityIllinois, USA

Hamburger University Curriculum

o 80 classroom hourso Topics – Fast food “the McDonald’s way”

• Restaurant operations, food preparation• Crew selection, training and team building• Marketing and promotion• Asset management• Corporate citizenship and ethics• Leadership, effective supervisory skills

Hamburger University

Illinois

Sydney

London

Munich

Hong-Kong

McDonald’sTransnational Strategy

U.S.

Singapore

Greece

Brazil