1. INTERNATIONAL BUSINESS STRATEGIES Andrey G. Medvedev, Professor September 15, 2009 CEMS MIM Programme

2. © Andrey Medvedev 3. GLOBAL – LOCAL DILEMMA 1. COMPETITION IN MULTI-DOMESTIC AND GLOBAL INDUSTRIES 2. MIXED INDUSTRIES 3. “LOCAL RESPONSIVENESS – GLOBAL INTEGRATION” FRAMEWORK 4. STRATEGIC ALTERNATIVES FOR FOREIGN EXPANSION

3. © Andrey Medvedev FOREIGN EXPANSION STRATEGY n FOREIGN EXPANSION STRATEGY n FOREIGN EXPANSION STRATEGY IS A FIRM’S PLAN TO EXTEND ITS VALUE CREATION ACTIVITIES INTO FOREIGN COUNTRIES

4. © Andrey Medvedev GLOBAL INTEGRATION – NATIONAL RESPONSIVENESS FRAMEWORK n FOREIGN EXPANSION STRATEGY n FOREIGN EXPANSION STRATEGY IS A FIRM’S PLAN TO EXTEND ITS VALUE CREATION ACTIVITIES INTO FOREIGN COUNTRIES n GLOBAL INTEGRATION – NATIONAL RESPONSINESS FRAMEWORK n GLOBAL INTEGRATION – NATIONAL RESPONSINESS FRAMEWORK HAS BEEN PROPOSED BY PROFESSORS C. K. PRAHALAD AND Y. DOZ n TWO FACTORS n TWO FACTORS (DIMENSIONS) ARE TAKEN INTO ACCOUNT –NATIONAL (LOCAL) RESPONSIVENESS –NATIONAL (LOCAL) RESPONSIVENESS WHICH BRINGS DIFFERENTIATION BENEFITS –GLOBAL INTEGRATION –GLOBAL INTEGRATION WHICH BRINGS BENEFITS EFFICIENCY

5. © Andrey Medvedev PRESSURES FOR RESPONSIVENESS (PRAHALAD AND DOZ, 1987) CUSTOMER NEEDS n DIFFERENCES IN CUSTOMER NEEDS n DIFFERENCES IN DISTRIBUTION n NEED FOR SUBSTITUTES AND PRODUCT ADAPTATION MARKET STRUCTURE n DIFFERENT MARKET STRUCTURE n GOVERNMENT REGULATION

6. © Andrey Medvedev MULTI-DOMESTIC AND GLOBAL INDUSTRIES n MULTI-DOMESTIC INDUSTRIES SPECIFIC TO EACH COUNTRY n ARE PRESENT IN MANY COUNTRIES BUT ARE SPECIFIC TO EACH COUNTRY OR A SMALL GROUP OF COUNTRIES. THE INTERNATIONAL INDUSTRY BECOMES A COLLECTION OF ESSENTIALLY DOMESTIC INDUSTRIES n COMPETITION IN EACH COUNTRY IS ESSENTIALLY INDEPENDENT OF THAT IN OTHER COUNTRIES. THE COMPETITIVE ADVANTAGES OF THE FIRM ARE SPECIFIC TO EACH COUNTRY n GLOBAL INDUSTRY n ONLY SMALL ADJUSTMENTS COUNTRY SPECIFIC CIRCUMSTANCES n OPERATES WORLD-WIDE WITH ONLY SMALL ADJUSTMENTS MADE BY MNCs FOR COUNTRY SPECIFIC CIRCUMSTANCES. THE INTERNATIONAL INDUSTRY IS NOT MERELY A COLLECTION OF, BUT A SERIES OF LINKED DOMESTIC INDUSTRIES n n A FIRM’S COMPETITIVE POSITION IN ONE COUNTRY IS INFLUENCED BY ITS POSITION IN OTHER COUNTRIES. THE RIVALS COMPETE ON A TRULY WORLD-WIDE BASIS

7. © Andrey Medvedev MIXED INDUSTRY n IS LOCATED BETWEEN TWO EXTREMES, GLOBAL AND MULTI-DOMESTIC INDUSTRIES n IS NOT PURELY GLOBAL AND NOT PURELY MULTI-DOMESTIC MIXED INDUSTRY n WITHIN A MIXED INDUSTRY SOME SEGMENTS HAVE A GLOBAL GEOGRAPHIC SCOPE, SOME HAVE A LOCAL GEOGRAPHIC SCOPE, AND SOME ARE IN BETWEEN (MIXED SEGMENTS) n THE CO-EXISTENCE OF GLOBAL, MULTI-DOMESTIC AND MIXED SEGMENTS APPEARS TO BE A FUNDAMENTAL CHARACTERISTIC OF MIXED INDUSTRIES

8. © Andrey Medvedev PRESSURES FOR INTEGRATION (PRAHALAD AND DOZ, 1987) GLOBAL STRATEGIC CO-ORDINATION n PRESSURES FOR GLOBAL STRATEGIC CO-ORDINATION –IMPORTANCE OF MULTINATIONAL CUSTOMERS –MULTINATIONAL COMPETITORS –INVESTMENT INTENSITY GLOBAL OPERATIONAL INTEGRATION n PRESSURES FOR GLOBAL OPERATIONAL INTEGRATION –TECHNOLOGICAL INTENSITY –PRESSURE FOR COST REDUCTION –UNIVERSAL NEEDS –ACCESS TO RAW MATERIALS AND ENERGY

9. © Andrey Medvedev Centralised or Decentralised Model DISINTEGRATED ORGANISATION HQ Subsidiary

10. © Andrey Medvedev INTEGRATED ORGANISATION HQ Subsidiary Integrated (networked) Global Model

11. © Andrey Medvedev MANUFACTURING FORD FIESTA IN EUROPE

12. © Andrey Medvedev FOUR FOREIGN STRATEGIC ALTERNATIVES Differentiation benefits from national responsiveness Efficiency benefits from global integration Low High LowHigh

13. © Andrey Medvedev FOUR FOREIGN STRATEGIC ALTERNATIVES Pressure for local responsiveness Pressure for global integration Low High LowHigh Multi-domestic Transnational (Multi-focal) International International (Home replication) Global Local differentiationDifferentiation and low cost Global differentiation Low cost

14. © Andrey Medvedev MULTI-DOMESTIC STRATEGY n A COMPANY CUSTOMISES ITS PRODUCTS TO SUIT THE NEEDS OF CUSTOMERS IN EACH COUNTRY IT COMPETES IN n THE COMPANY TRANSFERS VALUE CREATION FUNCTIONS ABROAD n THE COMPANY SETS UP MANUFACTURING OPERATIONS IN COUNTRIES IN WHICH IT OPERATES

15. © Andrey Medvedev INTERNATIONAL (HOME-REPLICATION) STRATEGY STANDARDISED PRODUCT n A COMPANY OFFERS CUSTOMERS IN ALL COUNTRIES A STANDARDISED PRODUCT ALLOWING FOREIGN DIVISIONS TO ADAPT PRODUCTS TO LOCAL PREFERENCES ONLY SLIGHTLY CORE COMPETENCIESAT HOME n MANY CORE COMPETENCIES ARE LOCATED AT HOME TRANSFERS THESE COMPETENCIES n THE COMPANY TRANSFERS THESE COMPETENCIES FROM THE PARENT TO ITS FOREIGN DIVISIONS IN ORDER TO IMPROVE DOMESTIC CORE COMPETENCIES

16. © Andrey Medvedev GLOBAL STRATEGY LOCATION ADVANTAGES n A COMPANY TRIES TO EXPLORE LOCATION ADVANTAGES n CORE COMPETENCIES SEPARATE LOCATIONS n CORE COMPETENCIES ARE LOCATED IN SEPARATE LOCATIONS COSTS ARE LOWEST n THE COMPANY MANUFACTURES INPUT ACTIVITIES IN THE COUNTRIES WHERE COSTS ARE LOWEST CHEAPER PRODUCTS n IT HELPS REDUCE PRODUCTION COSTS SO THAT THE COMPANY CAN OFFER FOREIGN CUSTOMERS CHEAPER PRODUCTS

17. © Andrey Medvedev TRANSNATIONAL STRATEGY n A COMPANY SIMULTANEOUSLY FACES BOTH STRONG PRESSURE FOR LOCAL RESPONSIVENESS AND STRONG PRESSURE FOR COST REDUCTION AND INTEGRATION n THE COMPANY TRIES TO SIMULTANEOUSLY ACHIEVE LOW COST (THROUGH LOCATION ECONOMY, ECONOMY OF SCALE AND LEARNING EFFECTS) AND DIFFERENTIATE ITS PRODUCTS TO ACCOUNT FOR NATIONAL DIFFERENCES n TRANSNATIONAL STRATEGY AIMS TO REACH ADVANTAGES OF BOTH A GLOBAL AND A MULTI-DOMESTIC STRATEGY n THIS STRATEGY IS NOT AN EASY ONE TO PURSUE

18. © Andrey Medvedev FOUR FOREIGN STRATEGIC ALTERNATIVES Pressure for local responsiveness Pressure for global integration Low High LowHigh Multi-domestic Transnational (Multi-focal) International International (Home replication) Global Local differentiationDifferentiation and low cost Global differentiation Low cost

19. © Andrey Medvedev LEVELS OF INTERNATIONAL STRATEGY: FUNCTIONAL STRATEGIES PRODUCTION n INTERNATIONAL PRODUCTION STRATEGY MARKETING n INTERNATIONAL MARKETING STRATEGY HUMAN RESOURCES n INTERNATIONAL HUMAN RESOURCES STRATEGY FINANCIAL n INTERNATIONAL FINANCIAL STRATEGY RESEARCH AND DEVELOPMENT n INTERNATIONAL RESEARCH AND DEVELOPMENT STRATEGY

20. © Andrey Medvedev INTERNATIONAL STRATEGY IMPLEMENTATION ORGANISATIONAL STRUCTURE n DESIGNING A SUITABLE ORGANISATIONAL STRUCTURE ENTRY MODE n SELECTING AN ENTRY MODE PRODUCTION n DESIGNING A PRODUCTION AND TECHNOLOGY POLICY MARKETING STRATEGY n SELECTING THE MOST SUITABLE MARKETING STRATEGY HUMAN RESOURCES n ASSESSING THE EXISTING HUMAN RESOURCES CAPABILITY FINANCIAL RESOURCES n MAKING DECISIONS CONCERNING WHICH INTERNATIONAL FINANCIAL RESOURCES SHOULD BE USED