Going Global

Going Global Ketan Gandhi PGCBM – 13 / 101874 DAKC - Mumbai

REASONS FOR GOING INTERNATIONALS International Opportunities Reactive Reasons •

Globalization of competitors – competition one of the strong reasons to go international. If it doesn’t go, some else will capture the market.

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Trade Barriers – Restrictive trade barriers like tariff, quotas, political reasons and other trade practices can make export to foreign country expensive, hence other measures to go global are adopted.

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Regulation & Restriction – at firm’s home government eg. Smikthkline & Beecham merger

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Customer Demand – primary reason.

REASONS FOR GOING INTERNATIONALS Proactive Reasons • Economies of scale – achieve economies of scale by access to various regional resources by setting up huge capacities & distribution centers at low cost • Growth Opportunities – where home market is matured – new market provide place to invest surplus profit & underutilize resources • Resource Access & Cost Savings – access to low cost and better control over resources, inputs like raw materials and lower transportation cost • Incentives (by Government) – tax exemptions, tax holidays, subsidy, loans at cheaper rates, access to properties etc

STRATEGIC FORMULATION PROCESS Strategic Planning Process • •

Define Mission & Objectives Assess environment for threats & opportunities » » » »

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Political instability Nationalism International Competition Environmental Scanning

Assess internal strengths & weakness Evaluate alternate strategies Choose the strategy

Implementation Process • • •

Implement Strategy thru structure, system & Operational process Set up control & feedback system Feedback to planning

Approach to World Markets Global Strategic Alternatives Globalization Is a term that refers to the establishment of worldwide operations and the development of standardize products & marketing Treating all the countries similar regardless of the culture Essentially captures the linkages among countries Rationale behind globalization is to compete by establishing worldwide economies of scale, offshore manufacturing and international cash flows. Main reasons for adopt globalization: (a) increasing competitive clout from regional trading blocks (b) declining tariffs, encouraging trading across the boarders (c) growth of information technology More riskier than to regionalization – difficult to manage – requires coordination of diverse culture

Approach to World Markets Global Strategic Alternatives Regionalization Is one of the ways in which markets are linked together within a region allowing more local representatives and specialization Establishing capabilities at regional level Recognizes local consumer preference – local culture – adjustment to local political environment. By ‘acting local’ firms can focus on individual countries more effectively.

Approach to World Markets Global Strategic Alternatives Globalization or Regionalization? Depends on: Nature of industry, Type of company, Company’s goal and strengths (or weakness), Nature of control it wish to have Direct approach – companies directly enter the foreign market by merger or acquisition (or setting up new companies) Indirect Approach – where company takes time to evaluate the market on various fronts – begins with simple export than moves to large scale export with branch in foreign country and eventually sets up production unit. Variant of above strategies are also possible.

Approach to World Markets Global Strategic Alternatives Role of E-Business (thru web) It is a new industry in itself and cannot be regarded as an extension of existing business. Opens up new area of business. Poses various problems like sharing of tax revenue, visuals of product, product demo, management of supply chain etc

Approach to World Markets Entry Strategic Alternatives In what way the new market can be best served by the Company in light of various risks investment carries. Exporting • • •

Simplest form with relatively low risky way to begin international expansion Little investments required, hence most suitable for small firms Critical factors – choice of distributors – tariffs, shipment cost, quotas etc

Licensing Involves granting right to a firm in the host country to produce or sell a product or both. The process involves transfer of rights. Mainly suitable where company does not wish to take risk of setting up its own production / distribution unit or there is regulatory prohibition on repatriation. Critical factors – patent & trade marks protections in the host country – track record and quality of licensee (should not become a direct competitor) – legal system (royalty repatriation etc)

Approach to World Markets Entry Strategic Alternatives Franchising The franchisor licenses its trademark, products, services and operating principles to the franchisee for an initial fees & subsequent royalties. Carries little risk – Eg McDonald’s. Ideal for small business at local level Contract Manufacturing Utilizing & availing services of cheaper labour overseas is contract manufacturing – it may be a entire product or any part of the product being outsourced to other country - quality & reliability must be maintained at contractors level

Approach to World Markets Entry Strategic Alternatives Service Sector Outsourcing Onshore & offshore outsourcing of ‘white collar’ jobs – Onshore thru transfer of human capital from one country to other – offshore is work being outsourced to host country. Turnkey Operations Entire operations ranging from designs to setting up of facility, training to personnel etc is done by the Company & finally keys are turned to local management for day to day operations – eg Fiat at Russia Management Contract Facility is set up by the local partner (may be as per instructions from international partner) and management is done by global partner. Eg. Hotel industry

Approach to World Markets Entry Strategic Alternatives International Joint Venture (J/V) Agreement to produce product or render services by 2 or more partners together – ownership is shared between local partner & global partner – reduces risk of expropriation and harassment by the host country – eg Maruti Suzuki. J/V partner, very critical to success hence must be carefully selected – fit between the partners on objectives, strategies and resources should be enough to work j/v – leverage to enter market on its own by the global market (eg. Hero Honda, Honda entering Indian market alone also). Fully Owned Subsidiary Company can set its own subsidiary in the host country by way of acquiring an existing firm or resorting to merger (these may reduce the risk) or it can set up its own subsidiary (highest risky way) – problems like attitude towards foreign owners, currency stability, political & economic policies like repatriation of earnings etc

Factors Affecting Entry Level Alternatives Entry Level Choice Which mode to select depends upon various factors viz; Critical advantages / disadvantages each options offer in relation to firm’s capabilities Critical environmental factors Contribution each option shall make to company’s overall mission & vision

Thank You!

Globalization is a fact of economic life. Carlos Salinas de Gortari Globalization has changed us into a company that searches the world, not just to sell or to source, but to find intellectual capital - the world's best talents and greatest ideas. Jack Welch