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External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in.

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Presentation on theme: "External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in."— Presentation transcript:

1 External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in the world economy Meta-level development in the world economy PEST analysis PEST analysis Internationalization of industries: globalisation vs. localisation (4C) Internationalization of industries: globalisation vs. localisation (4C) Bi-polarisation Bi-polarisation

2 3-Externel triggers-a 34 /2 External triggers to the internationalization process Driving forces toward globalization - opposite forces => tensions Current phase => Triggers may create conditions => Discontinuity => Next phase Movement: bidirectional increasing intl exposure decreasing

3 3-Externel triggers-a 34 /3 External triggers INTERNATIONALISATION Market penetration Geographical expansion Product development Organizational dynamics Vision mindset Meta trends Industry competition RETRENCHMENT* Internal triggers Product extension Restricted national market scope Figure 2.1. Developing an international business strategy Internl business development

4 3-Externel triggers-a 34 /4 External triggers Current phaseDiscontinuity New international strategic thrust Next phase Internal triggers Figure 3.1. External and internal triggers to a stage change

5 3-Externel triggers-a 34 /5 Three levels: Three levels: –meta level –industry level –Firm-specific level Interrelatedness!!! Meta level: broad trends, collectively help to shape competitive environment broad trends, collectively help to shape competitive environment Question: how they relate to individual industries and competititors Question: how they relate to individual industries and competititors

6 3-Externel triggers-a 34 /6 External triggers Meta level World trade PEST analysis Industry level Globalisation v localisation Firm level Bi- polarisation Figure 3.2. External triggers at the meta, industry and firm-specific levels TRINITY

7 External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in the world economy Meta-level development in the world economy PEST analysis PEST analysis Internationalization of industries: globalisation vs. localisation Internationalization of industries: globalisation vs. localisation Bi-polarisation Bi-polarisation

8 3-Externel triggers-a 34 /8 Meta-level development in the world economy the Triad the Triad interblock trade interblock trade direct investment direct investment dynamic adjustment dynamic adjustment

9 3-Externel triggers-a 34 /9

10 10Triad 1/5 of global population, 4/5 of world output (GNP) 1/5 of global population, 4/5 of world output (GNP) more manufacturing/service divisions more manufacturing/service divisions nationality of companies: outdated nationality of companies: outdated national government can not obstruct or impede national government can not obstruct or impede raising import penetration: interlinked nature raising import penetration: interlinked nature USA import: USA import: –1970: 4.1% GNP –1980: 9.1 % GNP –1990: over 18% Main competitors for indigenous firms are increasingly to be foreign!

11 3-Externel triggers-a 34 /11

12 3-Externel triggers-a 34 /12 35%740 m Western Europe 28% 350 m NAFTA 30% 370 m Japan, Australia & Tigers 20% 400m Africa, Middle East, Indian subcontinent 6%1700m 34%760m 25%2300m The Triad Central & Eastern Europe 7%; 390m South & Central America 4%; 390m China, other Asian-Pacific developing 5%; 1900 m Figure 3.3. The Triad and the world economy, 1991: percentage of world GNP; population in millions

13 3-Externel triggers-a 34 /13 NAFTA South & Central America Western Europe Central & Eastern Europe Japan and Tiger economies China & Asia Pacific Africa, Middle East & India 28% 40% 34% 22% 68% 26% 47% ,000 Figure 3.4. Forecast growth of world Triad markets, : levels of GNP (billion USD) and estimated percentage changes over the period {World Bank]

14 3-Externel triggers-a 34 / : Uruguay Round of the GATT: significant reduction in the trade barriers cuts in tarifs cuts in tarifs bringing in farm products, textiles, services bringing in farm products, textiles, services intellectual property rights intellectual property rights conditions: when a state allowed imposing trade barriers conditions: when a state allowed imposing trade barriers World trade growth > world outcome=> XXI. Century: interlinked economy is likely grow faster => international competition is increasing more quickly than output grows EU, NAFTA: large unified regional trading area Liberalization promoted inter- and intra-block trade!

15 3-Externel triggers-a 34 /15 Europe Intra-Europe $bn (35,4%) America Asia Intra-Americas $bn (7.7%) Intra-Asia $bn (11.8%) $bn (6.7%) 174,7 $bn (4.9%) $bn (4.4%) $bn (4.4%) $bn (3.7%) Key:= Exports to Figure 3.5. Projected merchandise trade in US$ billion and as a percentage of world trade for the year 2005 [GATT Report] $bn (5.3%) Others: 14.9%

16 3-Externel triggers-a 34 /16 $ billion EuropeUSAJapanRest of world Figure 3.6. Trade balance of world electronics industry: surplus/deficit in US$ billion

17 3-Externel triggers-a 34 /17 Direct investments raising exchange rates (Japan, Germany) raising exchange rates (Japan, Germany) hard to raise productivity hard to raise productivity Foreign assets: Japan $514 bl, Germany $300bl (1992) World trade flows increasingly reflect the locational decisions of international competitors and not just the competitive position of indigenous nationally owned companies! …never has an economy passed so quickly as Japan from non- industrialised backwater, through industrial giant, and now towards threatened industrial dinosaur - all in one generation.*

18 3-Externel triggers-a 34 /18 Dynamic adjustment success eventually brings attendant difficulties (Japan, Germany) success eventually brings attendant difficulties (Japan, Germany) facing structural challenges: raising affluence - erroding cost bases facing structural challenges: raising affluence - erroding cost bases home manufacturing base: less and less competitive home manufacturing base: less and less competitive loss of export sales and employment - adjustments (time leg) loss of export sales and employment - adjustments (time leg) Undermines the success of the previously rapidly growing economies => Enables new countries to become preferred production base! Trade protection: only a temporary solution Trade protection: only a temporary solution Protection removes the competitive pressure Protection removes the competitive pressure Protection removed: adjustment more dramatic!!* Protection removed: adjustment more dramatic!!*

19 3-Externel triggers-a 34 /19 The dynamics of the TRIAD world economy create instability and change, but there can be no such thing as absolute winners or losers. Winning becomes increasingly expensive as wages and currencies are adjusted upwards. Loser economies, by contrast, are able to rejuvenate in the long term since an unemployed workforce is available at reasonable cost and backed by a week currency. Time legs to this process ensure that the adjustment process is slow, with changes in political, technological and social factors either reinforcing the economic adjustment processeither reinforcing the economic adjustment process or retarding it.*or retarding it.*

20 External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in the world economy Meta-level development in the world economy PEST analysis PEST analysis Internationalization of industries: globalisation vs. localisation Internationalization of industries: globalisation vs. localisation Bi-polarisation Bi-polarisation

21 3-Externel triggers-a 34 /21 PEST analysis –Political-Economic drivers –Social (lifestyle) changes –Technological development –Linking PEST and meta-level changes

22 3-Externel triggers-a 34 /22 Political-Economic drivers-1 Indian car component industry Indian companies: equipment suppliers Main advantages: low cost, lax environment controls long engineering tradition hotdirty Cost effective country for hot and dirty operations: forging of heavy components manual assembly

23 3-Externel triggers-a 34 /23 Political-Economic drivers-2 adequate infrastructure Disadvantage:adequate infrastructure reputation for poor quality Rejected as original equipment manufacturers => only spare parts => low cost, low quality spares (half price) => undermines to supply original equipment LOW COST IS AN INSUFFICIENT COMPETITIVE BASE!

24 3-Externel triggers-a 34 /24 political forces: brought liberalization political forces: brought liberalization economic forces: responsible for many of underlying dynamics economic forces: responsible for many of underlying dynamics –cost differencials –exchange rates –must recognise all inputs –customers: not looking for low cost at the expense of quality worldwide shift in economic location: attributed to labor cost competitiveness; but: worldwide shift in economic location: attributed to labor cost competitiveness; but: –productivity –quality

25 3-Externel triggers-a 34 /25 Germany Japan USA Italy France UK Spain Mexico Labour costs per hour/US$ Figure 3.7. World component supplies, labour costs per hour (US$) seats exhausts brakes

26 3-Externel triggers-a 34 /26 Germany UK Italy USA Japan France Spain Mexico Figure 3.8. Index labour cost per unit of output (US$) Germany: 100%

27 3-Externel triggers-a 34 /27 Home based production => continuing appreciation in the countrys exchange rate –drive down costs –locate production cross-border –increase cross-border production Otherwise: squeezed out of international markets The location of low cost economic facilities is constantly changing!

28 3-Externel triggers-a 34 /28 SANRITSU ELECTRIC (Tokushima plant, Shikoku island – currently: idle) Sanyo Electric supplier for 26 years (CD, radio, casette player) 1993 August: no longer ordering New source: Singapur! October: Tokushima run out of orders! Reason: yens sharp appreciation Plus:- product prices fell - intensified competition Japanese firms with higher cost => increasingly source products oversees!

29 3-Externel triggers-a 34 /29 Entry of KIA Motors into the US car market 1994: replicate Japanese entry strategy in a high competitive market - under-price products - similar quality - superior levels of standard equipments Japanese producers: increase price (response to $/yen rate) => gap appeared at the bottom end Toyota Corolla, Honda Civic: from $ Kia Sephia: $8.495 KIA strategy: replace Japanese models in the low price segments Japanese manufacturers: unable to match the lower cost base of new entrants unable to give premium price at luxory cars increasingly caught in the middle

30 3-Externel triggers-a 34 /30 Social (lifestyle) changes Powerful influence on customer choice World is becoming a smaller place World is becoming a smaller place –reduced costs of intl travel –enhanced communication: information on products –worldwide homogeneity of consumers preference –convergence of customer requirements (cameras, jeans, soft drinks) Continuing diversity: opposite directions Continuing diversity: opposite directions –cultural and language identities –national states, separate groups: differences be recognized Lifestyle trends: critical external trigger may operate either convergenceto accelerate the convergence of the global economy or diversitycontinue to promote diversity

31 3-Externel triggers-a 34 /31 NISSAN Manufacturing: Japan,Europe, North America Strategy: need to penetrate successfully Triad markets customers in each Triad markets: vastly different needs sub-markets: also Nissans believe: no universal world car! Basic models: meet some of the needs of each => to halve 3/4 of sales: designed for specific markets No averaging across markets to reach a compromise design! - looks at Triad region by region - identifies each markets dominant requirements lead countrylead country model => tailored to distinct needs of the dominant national markets

32 3-Externel triggers-a 34 /32 Technological development information technology data collation, analysis, transfer coordinate activities from diffuse location e-trade, e-finance communication => linking stock markets => linking financial systems => finance company operations travel and transport Promotes changes, adoption to changes satellite technology more quickly, cheaply pan-country media, pan-continent media

33 3-Externel triggers-a 34 /33 Developing technologies Gene splicing biotechnology (USA 70s), pharmaceutical industry Magnetic resonance imaging (MRI) body scanners showing images + biochemical reactions, medical equipment industry High-temperature superconductivity 80s, new ceramic materials lose electrical resistance at workable temperature Personal computers continuing advances: portable PCs rapid growth (Atari => Psion)

34 3-Externel triggers-a 34 /34 Neutral networks Neutral networks military applications (Internet), industrial and financial sector: recognition, forecasting military applications (Internet), industrial and financial sector: recognition, forecasting Communication satellites Communication satellites continuing growth and advancement (Berlin Olimpic Games => Telstar => moon landing => Sidney Olympic Games) continuing growth and advancement (Berlin Olimpic Games => Telstar => moon landing => Sidney Olympic Games)


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