Resumen 2do Parcial - IBC Saliva, Maria Eugenia PDF

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IBC
Saliva, Maria Eugenia...

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05. 01 Strategies for IB ROLE OF STRATEGY IN IB -

Formulating an international business strategy. The role of strategy in international business Value chain analysis is used to identify the internal capabilities of the firm that can be leveraged to create competitive advantage. The dilemma of choosing between standardizing products or localization is also discussed. Strategic alternatives including international, localization, global, and transnational strategies are presented.

STRATEGY: (is abstract, non-tangible) is the sum of choices-decisions that sustain a company, which explain the company’s plans. It determines how to use resources, capabilities and competences to achieve goals. 1. It is the map to create a company value 2. Strategy creates value for stakeholders. 3. Strategies explain what the company will do and won’t do 4. Manager must cross check opportunities and threats that appear in the market Idea behind the strategy. Adapt to not die, create more value

Each strategy starts with a vision and a mission. VISION: The vision is a future-oriented declaration of its purpose and aspirations, outlines its broad ambitions. what the company wants to obtain (goals). The vision will communicate to the employees, supplies, governments, etc. the value will guide their efforts. Companies are free to explain their vision. MISSION: The MNE’s mission complements its vision. The vision statement inspires people to dream & the mission statement inspires them to action. MNE multinational enterprise (company, firm) Examples: Vision and mission statement does not change, what changes is the strategy.

STEPS that company follow to create a strategy • Managers use different frameworks to organize strategic planning. • Most frameworks follow a similar logic cycling through the following sequence: (1) Identify potential product markets for opportunities and threats. (2) Assess the preferences of targeted customer segments. (IB & Intern. Global Marketing are linked)

(3) Analyze internal strengths and weaknesses relative to customers and competitors. (4) Formulate a strategy: set the objectives,formalize politics, tactics,create capabilities and bring back to reality of our resources. (5) Set clear and compelling objectives. (6) Formalize programs, policies, and tactics. (7) Acquire resources, create capabilities, and develop competencies. (8) Monitor and adjust standards given change in performance, rivals, or markets. Iterative process: a series of actions or steps taken in order to achieve a particular end.

RESOURCES, CAPABILITIES & COMPETENCIES Resources, Capabilities, and Competencies play a key role in supporting a strategy that creates competitive advantages. To create a competitive advantage we need the correct resources/inputs, core competency and create capabilities. Resources are inputs into an MNE production process. CAPABILITY is the capacity for resources to perform an activity in an integrated manner. (integrate the resources to create an output result). Capability: power of the ability to do something. Managers use resources and capabilities to create a core competency to bring together these connecting activities into an integrated value change. “what makes you different from others”. CORE COMPETENCY: is a special skill, outlook, technology, difficult to duplicate, it's what makes you different/special from others. TANGIBLE & INTANGIBLE RESOURCES

CREATION OF VALUE “VALUE” in economic terms: the difference between the cost of making a product and the price that customers are willing to pay for it. If an MNE can sell its product for more than the costs incurred to make it, it generates profits, and in doing so, it creates value. “if you have a demand of your product, you can increase the price” Creating value strategies: 1) Cost Leadership Strategy: make a product at the lower cost to appeal to the largest number of possible customers at the lower prices. (manaos, guaymallén, marca dia). 2) Differentiation Strategy: to do something that no other company can reply to at least as soon as possible, you need a high level of design, good marketing strategy and create a mind value for the customers such as creating a “mystic” of your brand (apple, armani, channel). 3) Integrating 1 & 2: in this case, we need innovation, use of the technology to improve our efficiency of the product, you should create a premium product and be careful when you lower the price, because, maybe people are going to doubt your quality product. (Production efficiency and creating value for customers) ex.Zara VALUE CHAIN: Activities to create value must be integrated. primary activities: represent core business functions support activities:support work done of the primary activities

GLOBAL INTEGRATION OR LOCAL RESPONSIVENESS? Competing in the global marketplace poses a dilemma: Should the company standardize products and processes and exploit location effects in order to maximize the efficiency gains of global integration? Or should it adapt products and processes to the unique situations in each market in order to maximize the effectiveness benefits of local responsiveness? Locally or globally, companies need to adapt or not their products, depending on the market (factors like culture, regulations, etc). This is a manager's task, if the company has the capabilities and resources to enter in the market, they can enter, if they don't, for example: Nestle dont compete on drinks because they know that they are not able to do it.

CONSIDERATIONS FOR GLOBAL INTEGRATION OR LOCAL RESPONSIVENESS 4 main aspects before choosing one strategy: 1. Potential to standardize: Integrate activities for a global integration. 2. Responding to local customers preferences: adaptation to customers demands, this is difficult because your cost is going to increase (probably). 3. Institutional agents: transnational institution(imf,wto, etc institutions that push for global integration) 4. Mapping interaction: mix of global integration and local responsiveness, companies search for the best percentage of standardized, keep the cost down and fit local adaptation/responsiveness. INTERNATIONAL CORPORATE LEVEL STRATEGIES 1. International Strategy: transfer local competences to foreign markets,low need of adaptation - Apple 2. Localization Strategy: Decentralized decision making encourages subsidiaries(how subsidiaries are going to work)to adapt local preferences/regulations Ex. McDonald’s 3. Global Strategy: requires standardization to be effective. These firms face strong pressures for: cost reductions and coming up with unique product’s characteristics to create a value. So, these firms aim to become the low-cost player in their industry and that requires global-scale production in a few low-cost locations. They exploit the

economies of scale, learning effects, and location economies to translate the resources and capabilities into core competences.Ex coca cola 4. Transnational Strategy: targets the efficiency of global integration, + local responsiveness, and a systematic approach to innovations. These companies reconcile global integration and local responsiveness to leverage the company’s core competency throughout worldwide operations. But this strategy is very difficult to implement. It requires innovation of technology to increase efficiency, it faces many challenges and increases the costs.

CONFIGURATION CHOICES: how a firm wants to distribute value activities. (local companies don't have this choice). A company’s option to go anywhere in the world to perform a primary or support activity gives tremendous choice of location. Options are: 1. Concentrated: the company performs the value chain activities in one location. 2. Dispersed: the company performs the value chain activities in different locations. 3. Location advantages: different political, legal, customer conditions, cost are different depending on location, for example, cheap labor in low middle countries. 4. Economies of scale: increase the output and at the same time decrease the amount cost per unit of a product. 5. Experience and learning effects: reducing the cost using their experience in the previous market, for example domino's pizza case. 6. Risks of configuration choices: Faced risk of changes, changes are unpredictable, we don’t know the future, for example: currency instability or if a tsunami crashed where you we’re sourcing, if bad things happen, we need to reconfigure our strategy (managers job) Source: "Keegan, W. and Green, M. Global Marketing. Pearson Education. 10th edition. (2020). Chapter 12 “Strategies for International Business”. OPENING CASE: Zara’s Disruptive Vision: Data-Driven Fast-Fashion Zara, a large clothing retailer headquartered in northwest Spain, has used an innovative strategy to power its global expansion. The first Zara shop opened its doors in 1975 in La Coruña. Today, there are more than 2.000 outlets and, on average, a new one opens every day. Now, in 2016, from its humble beginnings, there are more than 2.000 Zara storefronts strategically located in leading cities spanning 88 countries. Zara’s vision of data-driven fast-fashion anchors its strategy to integrate cutting-edge systems; state-of-the-art information technology; efficient, scale-driven production; astonishing logistics; and alluring distribution that designs, makes, moves, and sells sophisticated, yet affordable, apparel. Zara, in starting and sustaining the data-driven fast-fashion revolution, translates its vision into a practical strategy through a range of ingenious choices in acquiring resources, developing capabilities, and creating competencies. Separately and collectively, these anchor Zara’s competitiveness. Presently, no other apparel company comes close to designing, making, moving, and selling fashion as speedily as Zara. Its success leaves rivals with less time to figure out how to better configure and coordinate their operations. Some stay in the game, such as H&M, while others fall further behind, notably Gap. Activities: 1) Assess the difficulty a competitor, such as Gap, faces trying to recreate the resources, capabilities, and core competencies that define Zara.

2) Perform a value chain analysis on Zara. Which of Zara’s value chain activities create the most value for the company? What are Zara’s core competencies? Glossary: -Configuration: to set up, arrange and disperse value activities to the ideal locations around the world so that the company can start and sustain operations. -Location advantages: cost advantages arising from performing a value activity in the optimal location. -Concentrated configuration: the design of a value chain whereby a particular activity is performed in one geographic location and serves the world from it. -Vision: the idealization of what an MNE firm wants to be. It expresses, in broad terms, its ultimate goal. -Localization strategy: an approach that emphasizes responsiveness to the unique conditions prevailing in different national markets. -Resources: inputs, owned or controlled by the MNE, that support its production process. -Support activities: the general infrastructure of the firm that anchors the day-to-day execution of the primary activities of the value chain. -Disperse configuration: the design of a value chain whereby a particular activity is performed in many geographic locations and serves the world market from any to all of its units. -Capability: a distinct type of resource that improves the productivity of related resources owned by the firm. -Value: a measure of a firm’s capability to sell what it makes for more than the costs incurred to make it. The ultimate purpose of strategy. -Primary activity: the line activities that compose the value chain. Specifically, inbound logistics, operations, outbound logistics, marketing and service. -Strategy: an integrated and coordinated set of commitments of actions that reflects the company’s present situation, identifies the direction it should go and determines how it will get there. -Mission: statement that defines the business, its objectives and its approach to achieve them. -Translational strategy: configuring a value chain to exploit location economies as well as coordinate activities to leverage core competencies while simultaneously responding to local pressures. -Economies of scale: the lowering of cost per unit as output increases because of allocation of fixed costs over more units produced. -Core competencies: a special outlook, skill, capability or technology that runs through the firm’s operations, weaving together disparate value activities into an integrated value chain. Managers bundle resources and capabilities to create core competencies. -International strategy: the effort of managers to create value by transferring core competencies from the home market to foreign markets in which local competitors lack those competencies. -Global strategy: a strategy that increases profitability by achieving cost reductions from experience curves and local economies. -Local responsiveness: the process of disaggregating a standardized whole into differentiated parts to improve responsiveness to local market circumstances.

UNIT 05 – PART 02 REGIONAL RISKS OF DOING BUSINESS IN LATAM 1- POLITICAL RISKS ❖ “Failure of national governance” is one of the most serious risks to doing business for the second year in a row. This analysis comes from 2019 and then in 2020, the failure of national governance is still one of the highest risks that investors take into account when they are thinking of investing in our region. The problems can rise when there's not a strong government and we have political instability. Why is it so important? because the government keeps the country moving forward and people working and companies working being able to do business; if that is weak, if there's a problem with the national governance. ❖ “Social instability” also continues to hold the second position, reflecting persistent social tensions in the region. not only in Latin America these things happen, there is social instability or social troubles or problems in many countries. When we analyze Latin America as a whole region in many places we have these situations. In some countries the social instability is higher, and in other countries they have a better situation. If we compare the situation of Venezuela with the situation of Uruguay, we can find very big differences, so one country has a true problem with the social tensions and the other country that might also have other social problems is more stable.

❖ “Societal mistrust” as public institutions struggle to convey transparency and integrity to combat poverty and inequality, and guarantee citizen security. For many years this has happened in Argentina; we don't trust the public institutions because they lack transparency and integrity. The public institutions are not safe, people that live there don't trust their own public institutions. ❖ While progress has been made in reducing inequality and expanding the middle class, Latin America still remains a very unequal region. Middle class is what investors look at because that is the part of the population that actually consumes in greater proportions.

2- ECONOMIC RISKS Latin America doesn't have a growth study growth rate. When your economy is not a strong one, you are exposed through a foreign crisis, (the crisis of 2008 that started in some part of the world, it hit the rest of the countries, with the subprime crisis). The problem with that is when you have a weak economy like in general Latin America, countries have a crisis. You get hit by the crisis as other countries do, but to recover from that crisis is so hard it takes much more time to recover from that crisis, so your growth is low. ❖ Below-average growth rates, and exposure to global trade tensions. In latam the crisis affects us x2 bc of instability ❖“While unemployment in the region has decreased, in the context of slow growth and high levels of economic informality, the improvement is only “modest”. (people do not pay taxes) ❖ “Unmanageable inflation” was the number one risk in Argentina and Venezuela, where hyperinflation has long been a handicap. The rate of inflation in different kinds of countries might have inflation in very low quantities. The problem in Argentina is that nothing can stop the inflation, why is this happening or what is related to that? The exchange rate when money loses buying power, you need each time more local currency to buy the same things so prices escalate continuously, this is another issue related to instability. ❖ Deficiencies in public investment pose another disadvantage. International trade is a deficiency in public investment, when you don't have proper roads an-d when you don't have proper modes of transport, your costs increase. Is much more expensive to move merchandise by truck than by train. (if you want to invest in a company that is in the North of our country, a company with great export potential with great products with great quality, but then you also have to check not only that company, but also what kind of roads. ❖ Deficiencies in public health (Covid-19 Pandemic) possess another disadvantage. Now with the update of 2020, another risk that appeared in the analysis in the article was the deficiencies in public health. The problem is: if I can speak for my own country but also other Latin American countries are having different degrees of problems regarding this, getting the vaccines, vaccinating the population and that also is an economic risk. (Investors going into this region). ❖ Venezuela’s ongoing economic, political and humanitarian crisis is also a critical challenge for the region. “Large-scale involuntary migration” (estimated 4 million refugees) adds pressure to the neighbour economies’ already strained labour markets.

TOP 10 RISKS FOR DOING BUSINESS IN LATIN AMERICA: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Failure of national governance. Profound social instability Unemployment or underemployment Fiscal crises Failure of critical infrastructure State collapse or crisis Illicit trade Energy price shock Data fraud of theft Large-scale involuntary migration

Bibliography: World Economic Forum. Regional risks of doing business. 2019-2020 updated.

A- How Can Latin America Attract Foreign Investment in Times of COVID-19

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Foreign direct investment (FDI) Latin America and the Caribbean ( LAC) The United Nations Conference on Trade and Development (UNCTAD). Largest multinational enterprises (MNEs) Investment Promotion Agencies (IPAs) Customer relationship management (CRM)

“The impact will vary from sector to sector. While tourism, vehicle manufacturing, aviation, entertainment, real estate, coal, oil and gas, and luxury goods will suffer a significant decline, other

sectors like agro-manufacturing, information and communication technologies, logistics, consumer goods, pharmaceuticals, medical equipment, and financial services may emerge unscathed. Like any crisis, the COVID-19 emergency is also generating opportunities for growth in sectors such as e-commerce, digital technology, cybersecurity, biotechnology, healthcare, telemedicine, and renewable energy. Temporary employment opportunities have even emerged in some of the industries, particularly logistics for e-commerce”. RESOURCE-SEEKING INVESTMENTS: these aim to exploit natural resources, the availability of which is the main location advantage offered by the host country. MARKET-SEEKING INVESTMENTS: these aim to leverage the domestic market of the host country (and, eventually, that of other nearby countries). Some of the factors that influence this type of FDI include the target market’s size and growth rate, the aim of building a presence in major markets or following clients and/or suppliers engaging in FDI operations, the existence of physical barriers and/or high transportation costs, the need to adapt goods and services to local tastes and requirements, and the host country’s public policies. EFFICIENCY-SEEKING INVESTMENTS: these seek to rationalize the multinationals’ production to make the most of economies of spec...