1. THE STRATEGY OF INTERNATIONAL BUSINESS
WEEK 7
THE STRATEGY OF INTERNATIONAL BUSINESS

2. International Business Strategy
Learning Objectives:
Understanding why firms need strategy
Type of organizational strategies choices
Advantages and limitations of strategy

3. Strategy in international business
Strategy is the framework that managers apply to determine the competitive moves and business approaches that run the company
Strategy is concerned with identifying and taking actions that will lower costs of value creation and/or differentiate the firm’s product offering through superior design, quality service, functionality, etc.

4. Strategy in international business
Strategy express management’s idea on the best way to
Attract customers
Operate efficiently
Compete effectively
Create value

5. The Role of Strategy in International Business

6. Why Need Strategy To take advantage of Global Expansion as a
result of :
Pressure for costs reduction
Pressure for local responsiveness

7. Pressures for Global Integration
Companies that operate internationally face the asymmetric pressures of global integration versus local responsiveness
Change, whether in managers, competencies, industries, or environments, often spurs companies to rethink and reset their value activities

8. Assessing Industry Structure
5 elements:
Basic condition
Industry structure
Firm conduct
Firm performance
Government policy
Often rely on five-forces model

9. Assessing Industry structure - the Five Forces Model

10. Types Of Strategy
The firm entering and competing in foreign markets can adopt either an:
international
multidomestic
global
transnational strategy
Often, firms use a mix of these four types due to company, industry, and environmental situations

11. Four basic strategies

12. International strategy
Company leverage value by transferring valuable core competencies to foreign markets that competitors lack
Centralize product development functions at home
Establish manufacturing and marketing functions in local country but administer or control by head office
Benefit – create values by transferring core competencies, transfer of skills from head quarter to subsidiaries.
Examples: Microsoft, IBM, McDonald, Kellogg

13. Global strategy
Focus on improving worldwide performance through sales and marketing of common goods and services
Production, marketing, and R&D concentrated in few favorable functions
Require standardized product to keep cost’s low
suited to industries that focus efficient production
Semiconductor industry
Commodities products

14. Multidomestic strategy
Adjust product or services and business practices (market strategy production, and R&D) according to local markets’ need.
Benefits – minimize cost, political risk, environment risk, culture change, lower exchange rate risk, and so on.

15. Transnational strategy
A company’s operation is different based on knowledge and experience through worldwide operations
achieve low costs through location economies, economies of scale, and learning effects
differentiate the product offering across geographic markets to account for local differences
foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations achieve low costs through location economies, economies of scale, and learning effects

16. Integration-Responsiveness (IR) Grid (II): Strategy Types

17. Organizational Culture Aspects of Types of Strategies

18. Integration-Responsiveness (IR) Grid (I): Industry Types

19. Advantages and disadvantages of the four strategies

20. ENTERING FOREIGN MARKET
Where to enter?
When to enter?
How to enter?

21. WHERE TO ENTER?
location-specific advantages - favorable locations in certain countries may give firms operating there an advantage
agglomeration - beyond geographic advantages, location-specific advantages also arise from the clustering of economic activities in certain locations
natural resource seeking - resources are tied to particular foreign locations 21

22. WHERE TO ENTER?
innovation seeking - firms target countries and regions renowned for generating world-class innovations
market seeking - firms go after countries that offer strong demand for their products and services
efficiency seeking - firms single out the most efficient locations featuring a combination of scale economies and low-cost factors 22

23. 23

24. Cultural/Institutional Distances and Foreign Entry Locations
cultural distance - difference between two cultures along some identifiable dimensions (such as individualism)
institutional distance - extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries
stage models - school of thought that believes that firms will enter culturally similar countries during their first stage of internationalization and that they may gain more confidence to enter culturally distant countries in later stages 24

25. WHEN TO ENTER? first-mover advantages - advantages that
first entrants into a market obtain and that later movers do not enjoy
late-mover advantages 25

26. 26

27. HOW TO ENTER? scale of entry small-scale entries: large-scale entries:
demonstrate strategic commitment to certain markets, assuring local customers and suppliers for the long haul
deters potential entrants
hard-to-reverse strategic commitments limit strategic flexibility elsewhere and incur huge losses if these large-scale “bets” turn out wrong
small-scale entries:
less costly
focus on organizational learning by getting firms’ feet “wet”—learning by doing—limiting the downside risk 27

28. Modes of Entry The decision of how to enter a foreign market can
have a significant impact on the results. Expansion
into foreign markets can be achieved via the
following mechanisms:
Export
Import
Licensing
Contract agreement
Strategic Alliances

29. 29

30. Export strategy
Exporting is the marketing and direct sale of domestically-produced goods in another country.
Is a traditional and well-established method of reaching foreign markets.
Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required.
Most of the costs associated with exporting take the form of marketing expenses.

31. Export strategy
Exporting commonly requires coordination among four players:
• Exporter
• Importer
• Transport provider
• Government

32. Advantages of export strategy
Diversification – enable companies to diversify their activities
Profit potential – greater profitability

33. Pitfall of export strategy
Adjusting financial management – currency processes require adept financial management
Adjusting customer management – greater range of products/services
Adjusting for information technology
A catalog of additional stumbling block

34. Import strategy
Is a processes of moving products from one country to another country
Types of importers
Importers that look opportunistically for any product around the world that they can gain profit
Importers that look to foreign sourcing to get high quality of product and the lowest cost
Importers that use foreign sourcing to optimize their supply chains

35. Advantages of import strategy
Specialization of labor – more efficient
Global rivalry – less pressure especially high competitive industries (telecommunication, IT, automobiles)
Local unavailability – more ways to create values
Diversification of operating risks

36. Iran is looking to export liquefied natural gas (LNG) to China for some 30 years when its exports of the super cooled fuel hit world markets in The overall value of such a contract is estimated at more than $70 billion....In return, China would take a large upstream stake in the giant Yadavaran oilfield in southern Iran.

38. Licensing
Permits a company in the target country to use the property of the licensor.
Such property usually is intangible, such as:
patents, inventions, formulas, processes, designs, or patterns
copyrights for literary, musical, or artistic compositions
trademarks, trade names, or brand names
franchises, licenses, or contracts
methods programs, procedures, or systems

39. Licensing
The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.
Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI.
However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.

40. Disney consumer products
The Walt Disney Company is committed to the promotion and maintenance of responsible international labor practices in its licensing and direct sourcing operations throughout the world. Contracted Disney licensees are responsible for adhering to the same practices.
How to Submit a Proposal Disney licensees should meet the following requirements: 1) Your company must have a minimum of five years experience in manufacturing and distribution. 2) Your company must be a manufacturer, NOT a middleman or distributor. 3) Your company must have five years prior experience in the product category being proposed.

41. Franchising Franchise success is derived from three factors:
a specialized form of licensing in which the franchisor gives exclusive rights of local distribution to franchisee in return for payment of royalties and conformances to standardized operating procedures
Franchise success is derived from three factors:
product standardization
effective cost control
high recognition
Advantages:
Product acceptance
Management expertise

44. Contract Agreement - Turnkey
Can be in any possible arrangement:
BOT = Built Operate and Transfer
BT = Built and Transfer
Mostly for high tech or heavy industry
Project such as Highway, Bridge,
Plant, Port etcs.
Advantages:
Advantage of technology owned
Expertise
Low risk ( BT)
Disadvantages:
Short term ( period of concession)
Transfer of knowledge to future competitors
Example: Bakun Dam, Pinang
Bridge, Twin Tower, Dayabumi,
Abroad: PLUS in India, MAB in

45. PETRONAS Project in Africa
Cameroon: Polarcus to acquire offshore 3D seismic survey for Noble Energy and Petronas - 6 Dec 2009
Noble Energy's Cameroon and Equatorial Guinea assets
Polarcus has announced that further to a previous notification, the necessary governmental approvals and consent from Petronas Carigali have been secured for the award and a service contract for a 3D seismic acquisition project offshore West Africa, with the client, Noble Energy Cameroon. 

47. PETRONAS and the China National Petroleum Corporation currently operate in Sudan. A recent report by Human Rights Watch raises charges that the Asian oil giants have provided cover for their respective governments to ship arms and military equipment to Sudan in exchange for oil concessions granted by Khartoum

48. Control Complexity Related to Collaborative Strategy

49. Test your understanding
Why do international firms need to select strategies for their international business?
What is the international strategy adopted by -
- PETRONAS
- TELEKOM INTERNATIONAL (TMI)
- AIR ASIA
Discuss.