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External triggers External triggers to the internationalization process Meta-level development in the world economy PEST analysis Internationalization.

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Presentation on theme: "External triggers External triggers to the internationalization process Meta-level development in the world economy PEST analysis Internationalization."— Presentation transcript:

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

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 int’l exposure decreasing 3-Externel triggers-a 34 /

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

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

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

6 3-Externel triggers-a 34 /
External triggers TRINITY 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 3-Externel triggers-a 34 /

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

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

9 3-Externel triggers-a 34 /

10 Main competitors for indigenous firms are increasingly to be foreign!
Triad 1/5 of global population, 4/5 of world output (GNP) more manufacturing/service divisions nationality of companies: outdated national government can not obstruct or impede raising import penetration: interlinked nature USA import: 1970: 4.1% GNP 1980: 9.1 % GNP 1990: over 18% Main competitors for indigenous firms are increasingly to be foreign! 3-Externel triggers-a 34 /

11 3-Externel triggers-a 34 /

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

13 South & Central America
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% 2001 1991 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] 3-Externel triggers-a 34 /

14 Liberalization promoted
1995: Uruguay Round of the GATT: significant reduction in the trade barriers cuts in tarifs bringing in farm products, textiles, services intellectual property rights 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! 3-Externel triggers-a 34 /

15 3-Externel triggers-a 34 /
Intra-Europe $bn (35,4%) Europe 129.3 $bn (3.7%) 174,7 $bn (4.9%) 152.7 $bn (4.4%) 184.8 $bn (5.3%) Asia America 153.6 $bn (4.4%) 236.4 $bn (6.7%) Intra-Americas $bn (7.7%) Intra-Asia $bn (11.8%) Key: = Exports to Others: 14.9% Figure 3.5. Projected merchandise trade in US$ billion and as a percentage of world trade for the year 2005 [GATT Report] 3-Externel triggers-a 34 /

16 3-Externel triggers-a 34 /
1987 1988 1989 1995 100 80 60 40 20 -20 -40 -60 87 63 63 54 $ billion -7 -5 -8 -18 -18 -22 -24 -21 -25 -33 -34 -51 Europe USA Japan Rest of world Figure 3.6. Trade balance of world electronics industry: surplus/deficit in US$ billion 3-Externel triggers-a 34 /

17 3-Externel triggers-a 34 /
Direct investments raising exchange rates (Japan, Germany) 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.* 3-Externel triggers-a 34 /

18 3-Externel triggers-a 34 /
Dynamic adjustment success eventually brings attendant difficulties (Japan, Germany) facing structural challenges: raising affluence - erroding cost bases home manufacturing base: less and less competitive 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 Protection removes the competitive pressure Protection removed: adjustment more dramatic!!* 3-Externel triggers-a 34 /

19 3-Externel triggers-a 34 /
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 process or retarding it.* 3-Externel triggers-a 34 /

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

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

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

23 Political-Economic drivers-2
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! 3-Externel triggers-a 34 /

24 3-Externel triggers-a 34 /
political forces: brought liberalization 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: productivity quality 3-Externel triggers-a 34 /

25 seats exhausts brakes Germany Japan USA Italy France UK Spain Mexico
25.10 24.89 16.98 16.32 seats exhausts brakes 15.30 13.74 12.66 2.10 Labour costs per hour/US$ Figure 3.7. World component supplies, labour costs per hour (US$) 3-Externel triggers-a 34 /

26 Germany: 100% Germany UK Italy USA Japan France Spain Mexico 100 60 51
50 47 Germany: 100% 40 27 12 Figure 3.8. Index labour cost per unit of output (US$) 3-Externel triggers-a 34 /

27 The location of low cost economic facilities is constantly changing!
Home based production => continuing appreciation in the country’s 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! 3-Externel triggers-a 34 /

28 3-Externel triggers-a 34 /
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: yen’s sharp appreciation Plus: - product prices fell - intensified competition Japanese firms with higher cost => increasingly source products oversees! 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 $12.000 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 3-Externel triggers-a 34 /

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

31 3-Externel triggers-a 34 /
NISSAN Manufacturing: Japan,Europe, North America Strategy: need to penetrate successfully Triad markets customers in each Triad markets: vastly different needs sub-markets: also Nissan’s 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 market’s dominant requirements ‘lead country’ model => tailored to distinct needs of the dominant national markets 3-Externel triggers-a 34 /

32 3-Externel triggers-a 34 /
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 3-Externel triggers-a 34 /

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

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


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