business organization - week 11 - global market expansion

globalization:

development of an increasingly integrated global economy market especially by free trade, free flow of capital, tapping of cheaper foreign labor markets

internationalization

any activity and process that imply a business partner out of the home country

multinational corporation

company with facilities in at least one country other than its name country

glocalization

the practice of conducting business according to both local and global considerations

international strategy

stategy refers to a range of options for operating outside an organizations country of origin

global strategy

involves high coordination fo extensive activities dispersed geographically in many countries around the world

why expand?

• enlarge the market

• diversify the risk

• reduce costs

• access to raw materials

• acquire technology

• follow a customer

international strategy --> what they lead to + where it comes from

internationalization drivers + advantages --> international strategy --> market selection --> mode of entry

international strategy

• market drivers: similar customer needs, global customers, transferable marketing

• cost drivers: scale economies, country specific differences, favorible logistics

• competitive drivers: interdependence, global competitors

• government drivers: trade policies, technical standardization, host government policies

porter's diamond

explains why some locations tend to produce firms with competitive advantages in some industries more than others

global sourcing

purchasing services and components from the most appropriate suppliers around the world, regardless of location advantages (cost advantages, unique local capabilities

global sourcing: cost advantages

labor costs, transportation costs, communication costs, taxation, investment incentives

global sourcing: unique local capabilities

centers of excellence in R&D clusters globally

national market characteristics + national reputation for a particular product

global-local dilemma:

relates to the extent to which products and services may be standardized accross national boundaries and need to be adapted to meet the requirements of specific national markets --> global strategy, export strategy, transnational strategy, multi-domestic strategy

global-local dilemma: export strategies

• leverages home country capabilities/innovations/products in foreign markets

• used when pressure for both global integration and local responsiveness is slow

• suitable for companies with strong brands

• risk: home country view vs. skilled local rivals

global-local dilemma: multi-domestic strategy

• maximizes local responsiveness (different products for different countries

• low level of international coordination

• organization = a bunch of relatively independent units

• commonly found in marketing oriented companies

• risks: manufacturing inefficiencies and brand dilution

global-local dilemma: global strategy

• maximizes global integration with little/no local adaptation

• standardized products to suit all markets and efficient production (economies of scale)

• geographically dispersed activities are centrally controlled from headquarters

• common for commodity products

global-local dilemma: transnational strategy

• complex strategy that maximizes local responsiveness and global coordination

• aims to maximize learning + knowledge exchange between units

• efficient operation but products/services adapted to local condition

how to know what market

PESTEL

internationalization isn't easy: CAGE framework

C - cultural distance

A - administrative and political distance

G - geographical distance

E - economic / wealth distance

institutional knowledge

culture of the country, traditions, behavioral norms, regulations, laws. the greater the distance the greater the costs and difficulties encountered

business knowledge

knowledge of market conditions, potential customers/competitors in target countries. development of personal + professional netwroks in host country facilitates these learnings which required to be acquired through the experience

international cross-cultural comparison

competitive characteristics

country's markets can be assessed according to

1. market attractiveness to the new entrant

2. the likelihood and extent of the defender's reaction

3. defender's clout - the relative power of defenders to fight back

how to enter international markets: barriers

• related to the target market: geographical distance, cultural distance, linguistic gap, legal framework, political/eco instability, shortage of HR, administrative costs, logistics costs, the functioning of the labor market, corruption, safety issues

• related to the country of origin: exchange rate parity, public support, access to financing, labour market, transport and logistic cost, energy cost, regulations/bureaucracy/standards

• related to the firm itself: leader skills, time constraints, shortage of capital, product quality, lack of appropriate staff

staged international expansion model

proposes a sequential process where companies gradually increase their commitment to newly entered markets

4 modes of entry:

1. export

2. license or franchise

3. joint ventures

4. wholly owned subsidiary

staged international expansion model: advantages and disadvantages: export

advantages: no need for facilities, economies of scale in home country, internet facilitate market opportunities

disadvantages: lose location advantages in host, dependence on export intermediaries, exposure to trade barriers, transportation costs

staged international expansion model: advantages and disadvantages: license and franchising

advantages: contractual income, limited economic and financial exposure

disadvantages: difficulty to idenity partners, loss of competitive advantages, limited benefits from host nation

staged international expansion model: advantages and disadvantages: joint ventures

• advantages: shared investment risk, complementary resources

• disadvantages: difficulty to find parnter, relationship management issues, loss of competitive advantage, difficult to integrate and coordinate

staged international expansion model: advantages and disadvantages: wholly owned subsidiary

• advantages: full control, coordination possible, rapid market entry, green field investments are possible + may be subsidized

• disadvantages: substantial investment and commitment, acquisitions may create integration/coordination issues, greenfield investments are consuming and unpredictable

a new challenge: staged international expansion model is challenged by 2 phenomena

• born global firms: new small firms that internationalize quickly (tech industry)

• emerging country multinationals: building unique capabilities in the home market but exploiting them in international markets very quickly

global sourcing: cost advantages