0. Chapter 8 Looking at International Strategies

1. FIRST - A NOTE ON THE PRESENTATION SCHEDULE & CASES
Added March, 2011
FIRST - A NOTE ON THE PRESENTATION SCHEDULE & CASES
August 4:
Stakeholder Analysis
Role of Vision & Mission
Netflix
Whole Foods
August 9:
Smartphones
Strategic Partnerships – China
Red Bull
Cirque du Soleil
Southwest Airlines
Please a copy of the presentation the night before. Thank you.
Cases: 4 opportunities remain to submit a case analysis. The very last opportunities to submit cases are July 28 (Balanced Scorecard) and August 2 (Daimler Chrysler).
Final case – this is due on August 11. This case analysis is an individual effort. Case:
Corporate Solutions at Jones Lang LaSalle (2001) – Harvard Business School, Rev: July 1, 2010,

2. OBJECTIVES 1
Define international strategy and identify its implications for the strategy diamond 2
Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage
Use the CAGE framework to identify desirable international arenas 3
Describe different vehicles for global expansion 4 5
Apply different international strategy configurations 6
Outline the international strategy implications of the static and dynamic perspectives

3. Dell became China’s largest computer system provider in just 5 years
DELL GOES TO CHINA “
Strategic decisions
Vehicles
Staging
Consumers first, then corporations
U.S.
Assemble and distribute itself
Corporations first
China
Partner
Dell became China’s largest computer system provider in just 5 years
If we’ve not in what will soon be the second-biggest PC market in the world, then how can Dell possibly be a global player? “

4. INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
Updated March, 2011
INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
When will we go international?
How quickly will we expand into international markets?
In what sequence will we implement our entry tactics?
Staging
Arenas
Which geographic areas will we enter?
Which channels will we use in those areas?
Which value chain activities?
Arenas
Vehicles
Which international market-entry strategies will we use?
Alliances?
Acquisitions?
Greenfield investments?
Economic logic
Staging
Vehicles
Differentiators
Economic logic
Differentiators
How does our international strategy lower our costs, raise the prices we can charge, or create synergies between our business and corporate strategies?
How does being international make our products more attractive to our customers?
Will our existing differentiators be effective in these new markets?

5. THREE KEY QUESTIONS IN THE MODEL OF INTERNATIONALIZATION
Why should we go?
Positive economic logic?
Supported by our differentiators?
Strengthens or adds to our differentiators?
If not – STOP. Consider another strategy.
If the “why” is positive – move to “Where” and “How”
Evaluate hard criteria, soft criteria, and Fit before reaching a final decision

6. PROS VS. CONS OF INTERNATIONAL EXPANSION
Many international expansions fail
Why?
Pepsi’s ambitious expansion in the 1990s resulted in a decreased international market share
Wal-Marts international businesses perform poorly relative to its U.S. business
Newness can be a disadvantage (e.g., your firm must move up the learning curve)
Foreignness can be a liability (e.g., your managers may not understand local culture)
Governance and coordination costs increase as you manage from a distance

7. KEY FACTORS – GLOBAL ECONOMIES OF SCALE
Pharmaceutical firms such as Pfizer, can leverage large R&D budgets
CitiGroup, McDonald’s, and Coca-Cola can leverage brands
MITY can leverage its excess capacity to produce chairs and thereby reduce average costs
Global expansion may be attractive if it allows you to leverage fixed assets over new markets
Key factors
Global economies of scale 

8. KEY FACTORS – LOCATION
Input costs
Competitors
Demand conditions
Regulatory environment
Presence of complements
Choosing the right location can provide advantages in terms of
A five-forces analysis can help reveal the attractiveness of a location
Key factors
Global economies of scale 
Location 

9. KEY FACTORS – MULTIPOINT COMPETITION
Expanding into a new market may provide an opportunity for a “stronghold assault”
For example, French tire maker Michelin had negligible presence in the U.S. in the 1970s. It learned of Goodyear’s plans to expand into Europe, so it launched a counter attack. It started selling tires in the U.S. at or below cost, and thereby forced Goodyear to drop prices and cut profits in its core market
Key factors
Global economies of scale 
Location 
Multipoint competition 

10. KEY FACTORS – LEARNING AND KNOWLEDGE SHARING
Expanding into a new market can create opportunities to innovate, improve existing products in existing markets, or develop ideas for new markets
SC Johnson, for example, used technology developed in its European operation (a product for repelling mosquitoes in homes) to create the “ Glade Plug-ins” air freshener in the U.S.
Key factors
Global economies of scale 
Location 
Multipoint competition  
Learning and knowledge sharing

11. THE CAGE DISTANCE FRAMEWORK
Cultural distance
Administrative distance
Geography distance
Economic distance
Attributes creating distance
Different languages
Different ethnicities; lack of connective ethnic or social networks
Different religions
Different social norms
Absence of colonial ties
Absence of shared monetary or political association
Political hostility
Government policies
Institutional weakness
Government involvement is high in industries that are
Producers of staple goods (electricity)
Producers of other “entitlements” (drugs)
Large employers (framing)
Large suppliers to government (mass transportation)
National champions (aerospace)
Vital to national security (telecom)
Exploiters of natural resources (oil, mining)
Subject to high sunk costs (infrastructure)
Physical remoteness
Lack of a common border
Lack of sea or river access
Size of country
Weak transportation or communication links
Differences in climates
Products have a low value-of- weight or bulk ratio (cement)
Products are fragile or perishable (glass, fruit)
Communications and connectivity are important (financial services)
Local supervision and operational requirements are high (many services)
Differences in consumer incomes
Differences in costs and quality of
Natural resources
Financial resources
Human resources
Infrastructure
Intermediate inputs
Information or knowledge
Nature of demand varies with income level (cars)
Economies of standardization or scale are important (mobile phones)
Labor and other factor cost differences are salient (garments)
Distribution or business systems are different (insurance)
Companies need to be responsive and agile (home appliances )
Industries or products affected by distance
Products have high linguistic content (TV)
Products affect cultural or national identity of consumers (foods)
Product features vary in terms of size (cars), standards (electrical appliances), or packaging
Products carry country- specific quality associations (wines)
Source: Recreated from

12. RELATIONSHIP PREFERENCES IMPACT BUSINESS BEHAVIORS – CULTURAL DISTANCE
Added
March, 2011
Power distance: the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally
Uncertainty Avoidance: the extent to which the members of a culture feel threatened by ambiguous or unknown situations
Individualism: stands for a society in which the ties between individuals are loose: everyone is expected to look after him- or herself and his or her immediate family only (the opposite of collectivism)
Masculinity: stands for a society in which emotional gender roles are clearly distinct: men are supposed to be assertive, tough, and focused on material success; women are supposed to be more modest, tender, and concerned with the quality of life
Confucian dynamism: a dimension of national cultures found through research among student samples using the Chinese Value Survey. Used by Hofstede to describe long-term vs. short-term orientation.
Long-term orientation: the fostering of pragmatic virtues oriented toward future rewards, such as perseverance, thrift, and adapting to changing circumstances
Short-term orientation: fostering of virtues related to the past and present, such as national pride, respect for tradition, preservation of face, and fulfilling social obligations
Power distance: relationship between superiors and subordinates (Hofstede, Cultures and Organizations, Software of the Mind, 2010)*
Individualism vs. collectivism
United States is clearly different from Japan
Risk-taking behavior
Uncertainty avoidance
Trust
Future orientation
Fatalism
5 key indices: Power distance, uncertainty avoidance, individualism, masculinity, Confucian dynamism
Original edition

13. CORPORATE IMAGES ILLUSTRATE DIFFERENT CULTURES AND BEHAVIORS
Samii/Mertz
CORPORATE IMAGES ILLUSTRATE DIFFERENT CULTURES AND BEHAVIORS
Added March, 2011
Egalitarian
INCUBATOR
GUIDED MISSLE
Focus on self-expression and self-fulfillment
Innovative; entrepreneurial
Change – fast and spontaneous
Emotional – “the journey is the reward”
Employees are co-creators
Management by enthusiasm
Focus on reaching targets and strategic intent
Task, not role oriented “whatever it takes”
Egalitarian; cross-functional
Loyalties are to professions and projects (not the company)
Employees are specialists and experts
Management by objectives US UK
Norway
Ireland
Finland
Sweden
Denmark
Switzerland
Canada
Some US UK
Person
Task
FAMILY
EIFFEL TOWER
Greece
Italy
Japan
Singapore
South Korea
Spain
Person-oriented
Promotion by age
Long-term, devoted relationship to corp.
High context
Employees are family members
Management by subjectives
Bureaucratic division of labor
Status is ascribed to the role
Careers assisted by professional qualifications
Structure, order, predictability
Employees are human
Resources
Management by job description
Germany
Austria
Other northwestern European and
North American
Hierarchical
Source: Fons Trompenaars & Charles Hampden-Turner, Riding the Waves of Culture, 1998

14. ADMINISTRATIVE DISTANCE
Updated March, 2011
ADMINISTRATIVE DISTANCE
Free Trade
Agreements
FTA’s
Open foreign markets to US exports
Import Laws
Antidumping (dumping – selling goods below cost in a foreign country)
Legal concerns for US firms
Foreign Corrupt
Practices Act
Anti-bribery provisions
Intellectual
Property
Protection
Patent Cooperation Treaty
USPTO

15. ADMINISTRATIVE DISTANCE
Decreased distance between US, Mexico, and Canada
Historical Political Hostilities
NAFTA
Increased distance between Cuba and US

16. “Bottom of the pyramid”
ECONOMIC DISTANCE
Deliberate Targeting
“Bottom of the pyramid”
4 billion people
Ex: shampoo for
cold water

17. CHOICE OF ENTRY MODES Choice of entry mode Equity (FDI) modes
Nonequity modes
Exports
Contractual agreements
Alliances and joint ventures (JVs)
Wholly owned subsidiaries
Direct exports
Licensing/ franchising
Minority JVs
Greenfield investments
Indirect exports
Turnkey projects
50/50 JVs
Acquisition
Others
Contracted R&D
Majority JVs
Others
Comarketing
Strategic alliances (within dotted areas)
Source: Adapted from Pan, Y. and D. Tse, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, 31 (2000),

18. VEHICLES FOR ENTERING FOREIGN MARKETS
100%
FDI
Exports
Alliance
Champion International’s paper exports through independent brokers
Honda’s initial entry into the U.S. market
FDI through acquisition
Bridgestone’s acquisition of U.S.-based Firestone
Ford-Mazda Genentech-Hoffman LaRoche
Alliance and exports
KFC’s franchisees in India
Degree of ownership control over activities per- formed in the foreign market 0%
100% Exports
100% Local
Exports versus local production
Source: Examples drawn from in Gupta, A., and V. Govindarajan, “Managing Global Expansion: A Conceptual Framework,” business Horizons, March/April 2002, 45-54

19. EXPORTING OPTIONS
Most common option in relatively close markets and for products with lower shipping costs
Shipping
A firm may form an alliance or franchise giving a local partner the right and responsibility to operate the firm’s business in their home market (e.g., Burger King’s expansion in Europe)
Licensing and franchising
A firm may enter Turnkey project agreements, R&D contracts, or joint-marketing initiatives (e.g., a German firm Bayer AG contracts large R&D projects to a U.S. firm)
Special agreements

20. ALLIANCES
Until recently, China did not allow non-Chinese companies in China … û
U.S. firm
… so U.S. companies formed alliances to gain access
Chinese Firm

21. FOREIGN DIRECT INVESTMENT
Home country/ market
Foreign company
Local company
Acquires
South African Breweries purchase Miller Brewing in to gain access to U.S. customers and brewing capacity
DaimlerChrysler and BMW each invested $250 million to start local factories in Brazil

22. IMPORTING
Importing is often a “stealth” form of internationalization because a firm will claim to have no international operations and yet directly or indirectly base production or service delivery abroad
Country A
Production
Country B
“Domestic” company
Customer service
Home country
Country C
Logistics

23. INTERNATIONAL STRATEGY CONFIGURATIONS
Updated March, 2011
INTERNATIONAL STRATEGY CONFIGURATIONS
Relatively few opportunities to gain global efficiencies
Many opportunities to gain global efficiencies
Relatively high local responsiveness
Multinational configuration Build flexibility to respond to national difference through strong, resourceful, entrepreneurial, and somewhat independent national or regional operations. Requires decentralized and relatively self-sufficient units
Example : MTV initially adopted an international configuration (using only American programming in foreign markets) but then changed its strategy to a multinational one. It now tailors its Western European programming to each market, offering eight channels, each in a different language
Transnational configuration Develop global efficiency, flexibility, and worldwide learning. Requires dispersed, interdependent, and specialized capabilities simultaneously
Example : Nestle has taken steps to move in this direction, starting first with what might be described as a multinational configuration
Today, Nestle aims to evolve from a decentralized, profit-center configuration to one that operates as a single, global company. Firms like Nestle have taken lessons from leading consulting firms such as McKinsey and Company, which are globally dispersed but have a hard-driving, one-firm culture at their core.
Relative low local responsiveness
International configuration Exploit parent-company knowledge and capabilities through worldwide diffusion, local marketing, and adaptation. The most valuable resources and capabilities are centralized; others, such as local marketing and distribution, are decentralized
Example : When Wal-Mart initially set up its operations in Brazil, it used its U.S. stores as a model for international expansion
Global configuration Build cost advantages through centralized, global-scale operations . Requires centralized and globally scaled resources and capabilities
Example : Companies such as Merck and Hewlett- Packard give particular subsidiaries a worldwide mandate to leverage and disseminate their unique capabilities and specialized knowledge worldwide
Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)

24. 30% of global PC mouse busi- ness by 1989
BORN – GLOBAL FIRMS
More and more firms, even young, small ones, have operations that bridge national borders
Logitech
Founded by
R&D
Production
30% of global PC mouse busi- ness by 1989
2 Italians
California
Ireland
1 Swiss
Switzerland
Taiwan

25. HOW TO SUCCEED AS A GLOBAL START-UP
If yes, Put together tools you will need to move into global market
Consider if you should be a global start-up
Do you need human resources from other countries to succeed?
Strong management team with inter- national experience
Do you need financial capital from other countries to succeed?
Broad and deep international network among suppliers, customers, and complements
If you go global, will target customers prefer your services over competitor's?
Preemptive marketing or technology to provide first-mover advantage
Can you put an international system in place more quickly than domestic competitors?
Strong intangible assets
Do you need global scale and scope to justify the financial and human capital investment?
Ability to keep customers locked in by linking new products and services to core business, while you innovate
Will a purely domestic focus now make it harder for you to go global in the future?
Close worldwide coordination and com- munication among business units, suppliers, complements and customers

26. DEVELOPING A GLOBAL MIND-SET
Having an appreciation for the differences between countries and people and seeing these differences as opportunities
Having developed skills for managing diverse teams in a world- wide work force
Global perspective
Global skills

27. EXPATRIATES AND INPATRIATES
From the home country
Inpatriates
From the local
or host country

28. Fewer than 15% of executives have substantive international experience
HOW WOULD YOU DO THAT?
If you were CEO, how would you build a global perspective in your executives?
Tactic
Action steps
Teams ?
Training
Transfers
??? 1 2 3 4
Fewer than 15% of executives have substantive international experience