International Strategy

INTERNATIONAL STRATEGY Globalization • Doing or Planning to Expand Business Globally • No Distinction Between Domestic and Global Markets • Global Business Dynamics for Production and Other Physical Facilities Irrespective of National Consideration

INTERNATIONAL STRATEGY Globalization • Product Development and Production Planning for Global Market • Global Sourcing of Production Factors – Man power, Technology, Finance, Raw Material from Best Source in the World • Global Orientation of Organisational Structure and Management Culture

INTERNATIONAL STRATEGY Globalization • Globalization of Economies, Industries, and Markets, affects business when firms expand beyond their domestic borders How will globalization affect your firm? • In each arena, globalization presents both opportunities and threats to a firm • Globalization can open up new markets for the firm and it’s competitors • Understand drivers of the globalization of economies, industries and markets to understand opportunities and threats to the firm

INTERNATIONAL STRATEGY Challenge in a globalized economic environment • Global economies create a complex business environment • Key strategic issues - competition, brand management, distribution and cross-transfer of best practices Understanding the impact of globalization • When an economy is globalized • The underlying drivers of the globalization • The impacts of globalization on a firm .

INTERNATIONAL STRATEGY • A country's economy becomes more globalized as the amount of trade and economic activity across the country's borders increases in relation to domestic activity • An economy whose cross-border economic activity is highly dispersed throughout different regions of the world is more globalized than one whose cross-border flows are concentrated in one or two regions • The concept of openness is different than the concept of globalization Openness of an economy is a necessary condition but not a sufficient condition. An open economy ≠ A global economy.

INTERNATIONAL STRATEGY High 100%

India

Japan

Dispersion of Trading Partners

USA

South Africa

Germany

Zimbabwe

Turkey

France

Vietnam

Kenya

Saudi Arabia

Netherlands Switzerland

B’ Desh

Ireland

Belgium

Sri Lanka

Nepal

Canada

Low 0%

Cross-border Flows

High 100%

INTERNATIONAL STRATEGY Relative Globalization of Various Economies (1999) Country

Cross-border Flows

Dispersion of Trading Partners

Nepal

0.05%

16.60%

Bangladesh

27.60%

39.40%

Canada

61.30%

9.00%

Sri Lanka

54.00%

41.40%

Switzerland

61.50%

45.30%

USA

22.00%

56.70%

Japan

17.00%

57.00%

Kenya

42.50%

57.30%

France

40.30%

65.00%

Turkey

39.80%

65.00%

India

23.60%

68.70%

Germany

44.60%

70.90%

South Africa

39.30%

79.90%

Netherlands

72.40%

50.60%

Belgium

87.70%

50.80%

Saudi Arabia

53.30%

57.20%

Vietnam

67.90%

66.00%

Zimbabwe

61.20%

71.90%

INTERNATIONAL STRATEGY Country's economy becomes more globalized as the amount of trade and economic activity across the country's borders increases in relation to domestic activity Drivers for Globalization of Economy • A government's desire to offer its citizens access to less expensive goods produced abroad • A government's active role in capturing benefits from trade for its domestic firms • Shifting of government policies and economic philosophies resulting in reduced trade barriers

INTERNATIONAL STRATEGY Drivers for Globalization of Economy • Reduced transportation costs due to better roads, increased availability of airline transportation • improved ordering and distribution processes, improved communication networks • Technological improvements that facilitate the exchange of products and services • The increasing prevalence of English as a standard business language Firms to understand why economies globalize and how globalization impacts the firm

INTERNATIONAL STRATEGY • •

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To determine the extent to which an industry is globalized, one needs to assess two variables An industry is considered highly globalized when the major competitors or key players, in the industry are competing around the world in all the major markets An industry is considered globalized to the extent that each of the key players in the industry has a strategic position that is similar across different markets

INTERNATIONAL STRATEGY •

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The automobile industry is highly globalized because each of the five largest players— General Motors, Ford, Toyota, Volkswagen, and DaimlerChrysler — are present (and, together, command the greatest market share) in the North American, South American, European, and Asian markets. Although 37 companies produce automobiles worldwide, the top five firms accounted for 75 percent of total production in 2000.

INTERNATIONAL STRATEGY

Each of these automobile firms maintains similar strategic positions across these markets. That is, quality and cost perceptions relative to other brands are reasonably similar across regions

INTERNATIONAL STRATEGY The globalization of industries is achieved when there are a set of firms, or key players, that are competing around the world in all the major markets

Drivers for Globalization of Industries • Key players see opportunities to take advantage of economies of scale • Key players see opportunities to take advantage of resources • Key players seek to advance their own unique competitive advantage to capitalize on opportunities and to establish themselves as first movers, or gain access to materials and resources that may be in short supply Firms to understand why industries globalize and what are potential opportunities and threats occur through globalization

INTERNATIONAL STRATEGY Globalization of Markets - A market is globalized when significant price differentials for a product cannot persist across geographic regions Drivers for Globalization of Markets • The evolution of global tastes and preferences that converge or become the same around the world • Reduction in formal and informal trade barriers

INTERNATIONAL STRATEGY • Lower transportation costs that drive prices down and open new markets in previously hard-to-reach locations • A reduction in costs to search for information, due to an effective worldwide communications network, which forces sellers to set uniform prices Firms to understand why markets globalize and how this globalization impacts the firm

INTERNATIONAL STRATEGY

OES Triangle

INTERNATIONAL STRATEGY OES Triangle • Interdependence of the components: Organization (O), Environment (E), and Strategy (S), and the importance of their alignment with one another • The key to its success lies in its ability to assemble the right balance, or fit, of the OES triangle

INTERNATIONAL STRATEGY

Organization - Appropriate Structure and Culture that will facilitate a firm's strategy in an environment Structure defines • Firm Procedures • Role Configuration • Determines Governance • Control Mechanisms • Centralisation / Decentralisation Provides the framework for authority and decision-making processes.

INTERNATIONAL STRATEGY Organization Culture defines a firm's values, beliefs, and norms that shape and control the way the firm conducts business Culture guides how employees interact with one another and with customers

INTERNATIONAL STRATEGY The environment includes market and nonmarket factors that can affect a company's ability to generate a profit • Identifying the buyers, the suppliers, the competitors, and the power dynamics among them • Identifying substitutes, complements, and barriers to entry that can affect a firm

INTERNATIONAL STRATEGY Strategy - The final component of the OES triangle • Identifying the firm's competitive advantage, goals for leveraging the competitive advantage, the scope of the firm, and the logic that articulates why the firm will succeed, given the other three elements.

INTERNATIONAL STRATEGY Strategy – • The firm's long-term goals • Ambitions for the firm that guide the firm in its decisions about which actions to pursue • Goals for for-profit firms usually include some measure of economic success

INTERNATIONAL STRATEGY Strategy – • The scope of the firm's business activities • The products and services the firm will provide, the technologies the firm will use, and the markets (demographic or geographic) the firm will target. • Managers also decide what the firm will produce in-house and what it will outsource. The scope of a firm answers the question, What are the activities in which this firm will engage?

INTERNATIONAL STRATEGY Strategy – • The firm's competitive advantage • The underlying logic that supports decisions about each of the three elements • Articulation of how the goals, scope, and competitive advantage will come together for the firm's success. • This step in developing a strategy explicitly answers the questions, Why will the chosen strategy work, and Why will this company succeed with the chosen strategy?

INTERNATIONAL STRATEGY What Is Competitive Advantage? • A firm doesn't need to capture all buyers in an industry to gain competitive advantage • A firm has competitive advantage if enough buyers in the firm's scope deem it to have an advantage and buy from that firm at a rate that allows the firm to be profitable • Competitive advantage is the reason customers buy a particular firm's products, instead of competitors' products, at a price that is profitable for the firm

INTERNATIONAL STRATEGY What Is Competitive Advantage? • If a firm has competitive advantage, it means that customers value its goods or services more than those of the firm's competitors or that the firm can produce goods or services at lower costs than its competitors • Competitive advantage is assessed by potential customers and is always measured relative to competitors • Customers validate a firm's competitive advantage when they buy from that firm instead of another firm. A particular firm's advantage is relative to competition because the competition is also attempting to capture potential industry earnings

INTERNATIONAL STRATEGY How Do Consumers Assess Competitive Advantage? • To create and capture maximum value in the industry, firms produce their products or services at the lowest possible cost for a given level of customer-perceived quality • Approaches for attaining competitive advantage have two major dimensions: quality and cost. If a company can achieve a quality-cost combination that allows it to be profitable, it has competitive advantage • When a firm expands beyond its domestic borders, it is crucial that it is aligned its quality-cost approach with its new environment and changing organization

INTERNATIONAL STRATEGY Sources of Competitive Advantage • Competitive advantages based on some combination of quality and cost are achieved by both a firm's position and its capabilities. Most firms have both types of advantage and each type reinforces the other

INTERNATIONAL STRATEGY Sources of Competitive Advantage Position Positional advantage refers to how a company's current situation gives it advantage • First mover or an innovator • An attractive industry structure due to governmental protection and support, geographical incumbency or industry standards that work in a firm's favour

INTERNATIONAL STRATEGY Sources of Competitive Advantage • Industry heterogeneity may confer advantages by allowing a firm to occupy a position relative to competitors. Permits to leverage its brand name, product offerings, industry status and / or operational effectiveness or scale • Position through its network, including its customer relationships and distribution channels

INTERNATIONAL STRATEGY Sources of Competitive Advantage Capability • Capability advantage refers to what a company does well • Distinctive competencies include - A firm's knowledge and skills - Its managerial systems - Physical systems - Its values

INTERNATIONAL STRATEGY Sustainability of Competitive Advantage • It is not enough for a firm to just gain a competitive advantage in a new environment • It must strive to sustain that competitive advantage • The firm may do this by building positions and capabilities that are difficult for competitors to imitate

INTERNATIONAL STRATEGY Sustainability of Competitive Advantage • A position will be more sustainable the more it forces potential imitators to be inconsistent with their own current image or reputation, activities or coordination and control mechanisms • These inconsistencies will deter the potential imitator from matching particular levels of quality and cost

INTERNATIONAL STRATEGY Sustainability of Competitive Advantage • Capability-based advantage will be more sustainable to the degree that it is difficult for a potential imitator to understand the capability • The more complex, tacit, and ambiguous the capabilities are, the more difficult they are to imitate. Capabilities are particularly difficult to imitate if they are highly interrelated

INTERNATIONAL STRATEGY Country Competitiveness Factor Conditions • Human Resources • Physical Resources • Knowledge Resources • Capital Resources • Infrastructure Resources

INTERNATIONAL STRATEGY International Marketing Intelligence • Adequate, reliable information is must for decision making • Decisions pertaining to Market Selection Prospects Competition Entry and Operating

4 Ps of Marketing Mix • Information related to

General Conditions Foreign Exchange Prescriptive Information

INTERNATIONAL STRATEGY International Marketing Intelligence • Source of Information India ITPO STC CC FICCI Boards EXIM Bank, Commercial Banks, ECGC IIFT Competitors Overseas International Trade center, Geneva Indian Embassies WTC Publications

INTERNATIONAL STRATEGY • International Marketing Intelligence Marketing Research 4 Ps Existing & Emerging Marketing Opportunities Relative SWOT Analysis Expensive Reliability? Paucity of data in Developing Countries Scope of Research Product Pricing Distribution Promotion Consumer Trend

INTERNATIONAL STRATEGY • International Marketing Intelligence Types of Research Exploratory Research Study of Secondary Data Personal Interviews Analysis of selected cases Conclusive Research Descriptive Research Case Study Statistical Study Experimental Research

INTERNATIONAL STRATEGY • International Marketing Intelligence Methods of Data Collection Observational Research Survey Research Personal Interviews Telephone Interviewing Mail Questionnaire

INTERNATIONAL STRATEGY • International Marketing Intelligence Research Agencies Benefit from professional expertise Unbiased Knowledge and Familiarity Cost Effective Problems

Cultural Differences Expensive Suitability of Research Methodology