Strategic Management Internationalisation PDF

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Lecture notes and wider reading covering all information required for Internationalisation in the exam. I achieved a first in the module....

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Internationalisation International Strategy- Overseas Markets The Economic global driver has two key issues: 

Companies are consistently looking to source at the lowest costs (consumers demanding better value and a source of competitive advantage).

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Western markets are becoming mature- the growth potential comes from fast growth emerging economies which is being fuelled by overseas investment into their home economies.

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The new case of China.

The Main Themes of International Strategy

Drivers of Internationalisation Market Drivers Standardisation of market characteristics. 

Similar customer needs e.g. credit cards- most societies consumers have similar needs for easy credit. This has promoted the worldwide spread of a handful of credit card companies ie Visa.

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Global customers e.g. car components manufacturers have become more internationalised, as their customers have ie Toyota and Ford have and required standardised components fro their factories around the world.

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Transferable marketing e.g. Coca-Cola have successfully marketed in similar ways globally.

Cost Drivers Cost can be reduced by operating internationally. 

Scale economies- happens when a business increases its volume to a level above what a national market might not support both on production and purchasing of supplies. Important in industries with higher development costs e.g. R&D in aircraft manufacturing.

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Country-specific differences- use countries that supply advantages in business area solely for those areas e.g. clothing: manufacturing in Bangladesh/design in Paris.

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Favourable logistics- the cost of moving products/services across borders relative to the final value. e.g. low cost of transporting microchips however bulky materials ie assembled furniture is difficult.

Government Drivers 

Trade policies- reduction of barriers to trade and investment. WTO policies reduce global trade barriers. Emergence of regional integration partnerships ie EU, NAFTA have too. However, no government allows complete economic openness and varies industry to industry ie high tech industries related to defence is sensitive.

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Technical standardisations- makes it easier for companies to access different markets as they can keep the same product/service without adjusting to idiosyncratic standards e.g. in electronics.

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Liberalisation and adoption of free market- adopted around the global encouraging international trade and investments.

Competitive Drivers Relate specifically to globalisation as an integrated worldwide strategy rather than simpler international strategies. 

Interdependence- between country operations increase pressure for global coordination. Company value chains are fragmented with suppliers, manufacturing and sales dispersed over many countries facing various competitive and customer pressures. Surging sales or a collapse in one country will have a direct effect on operations in the other countries.

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Global competitors- links directly to competitor strategy. Increase pressure to adopt strategy in response because competitors may use one country’s profits to cross-subsidise their operations in another. Loosely coordinated international strategy is vulnerable to globalised competitors as it is unable to support countries subsidiaries under attack from targeted, subsidised competition. Can lead to gradual withdrawal from countries under attack, and undermining of any economies of scale the company had started with.

Although Yip’s Drivers framework indicates many factors support of internationalisation, other factors can inhibit it. For example, customer needs and tastes for many food products inhibit their internationalisation and local governments often impose tariff barriers, ownership restrictions and local content requirements on foreign entrants. Determining a true scope for internationalisation is key in creating an internationalisation strategy.

Market Characteristics Four elements of the PESTEL framework are particularly important in comparing countries for entry:

PoliticalPolitical environments vary widely between countries and can alter rapidly. For example; Russia, since the fall of communism has seen frequent swings for and against private foreign enterprise. Example Toyota subject to a consumer boycott in China due to political tensions between China and Japan. Risk that governments will take over companies e.g. Argentina’s government nationalising Repsol’s stake in Argentina’s largest oil extractor and refinery. Governments can create opportunities to internationalise e.g. British government promoted financial services in London by offering tax advantages and a light touch regulatory environment for financiers from abroad.

EconomicKey comparators are levels of gross domestic product and gross domestic product and disposable income which indicate the potential size of the market. E.g China and India growth is providing opportunity to sell to a new creation of high consuming middle class. New markets growing in Nigeria and Ghana.

SocialFactors like population characteristics and lifestyle as well as cultural differences. E.g the availability of a well-trained work force and size of market demographic segments ie old and young- relevant to strategy. Cultural variations need to be considered e.g. tastes in the marketplace. Porsche- China like people driving cars for them.

LegalCountries vary widely in their legal regime, determining the extent to which businesses can enforce contracts, protect intellectual property or avoid corruption. Policing will be important for the security of employees, a factor that in the past has deferred business in some African countries.

CAGE Framework Measures the match between countries and companies according to four dimensions as follows:

Cultural DistanceRelates to difference in language, ethnicity, religion and social norms. Not only a matter of similarity in consumer taste but also compatibilities in terms of managerial behaviours. One way to shrink distance is through cooperation with local partners.

Administrative and Political DistanceDistance in terms of incompatible administrative, political or legal traditions. Colonial ties can diminish difference, so that the shared heritage of France and its former West African colonies creates certain understandings that go beyond linguistic advantages. Institutional weaknesses e.g. slow or corrupt administration can open up distance between countries. So too can be political differences.

Geographical DistanceInvolves other geographical characteristics of the country such as size, sea-access, and the quality of communication infrastructure. Transport infrastructure can shrink or exaggerate physical distance e.g. France is closer to countries in continental Europe than the UK is due to barrier presented by the English Channel.

Economic DistanceRefers particularly to wealth distances. Multinationals from rich countries are typically weak at serving such very poor consumers. However, these rich-country multinationals are losing out on large markets if they only concentrate on the wealthy elites overseas. C.K. Prahalad pointed out that the aggregated wealth of very poor people in the world is substantial. Simple maths would reflect these people are part of a market worth $2,000b per year. If rich multinationals can develop new capabilities to serve these numerically huge markets, they can bridge the economic distance, and thereby both significantly extend their presence in booming economies such as India.

Competitive Characteristics Country markets can be assessed according to three criteria: 

Market attractiveness to the new entrant- based on PESTEL, CAGE and Five Forces analyses.

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The likelihood and extent of defender’s reaction- related to the market attractiveness to the but also to the extent to which the defender is working with globally integrated, rather than multi-domestic, strategy. Defender more reactive if markets are important to it and it has managerial capabilities to coordinate its response.

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Defenders’ clout- the relative power of defenders to fight back. Clout is typically a function of share in the particular market, but might be influenced by connections to other powerful local players such as retailers or government.

International Competitor Retaliation

Modes of International Market Entry

Export Advantages Requiring less investment of resources. 

Entailing lower costs and risks whilst offering speedy entry.

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No need for operational facilities in host country.

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Economies of scale in home country.

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Internet can facilitate export marketing opportunities.

Disadvantages Lose any location advantages in host country such as products being manufactured cheaper locally. 

Dependence port intermediaries.

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Exposure to trade barriers.

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Transportation costs.

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Limited control of marketing and sales.

License and Franchise Involves a contractual agreement whereby a local firm receives the right to exploit a product technology/service concept commercially for a fee during a specific time period. Coca Cola use license agreements for their drinks and brands and McDonald’s use franchise arrangements. Advantages Contractual source of income. 

Limited economic and financial exposure as local partners bear the primary financial and political risks.

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Entry can be relatively quick.

Disadvantages Difficult to identify good partner. 

Loss of competitive advantage.

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Limited benefits from host nation.

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Lack of control over technologies and product and service quality.

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Risk of technological leakage and poor quality.

Joint Ventures Jointly owned companies where international investor shares assets, equity and risk with a local partner. Advantages Shared investment risk limits financial and political risk. 

Complementary resources- can build on the local partner’s knowledge of customer needs and local institutions.

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Maybe a required for market entry e.g. China in certain sectors.

Disadvantages Difficult to find good partners. 

Relationship management issues- disagreements when joint venture changes and evolves.

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Loss of competitive advantage.

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Difficult to integrate and coordinate.

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Losing control of technologies to the partner even if agreements can be made to lower the risk.

Volvo has used joint ventures in China however, Swedish competitor has decided to stay away from this.

Wholly Owned Subsidiary Involve 100% control through setting up entirely new greenfield operations or by acquiring a local firm. Advantages Full control- over technologies, operations, sales and financial results. 

Allows for exploiting production and coordination economies among diverse units globally.

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Integration and coordination possible.

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Rapid market entry though acquisitions.

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Greenfield investments are possible and may be subsidised.

Disadvantages Substantial investment and commitment and risk- this can be reduced when acquiring a local company, acquisitions carry their own risk however.

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Acquisitions may create integration/coordination issues.

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Greenfield investments are time consuming and unpredictable.

Gradualism of staged international expansion is challenged by two phenomena: Born-global firmsNew small firms that internationalise rapidly at early stages in their development. New technologies enable these firms to link up to international sources of expertise, supply and customers worldwide. International strategy is a condition of existence. Twitter and Instagram are examples. Emerging-country multinationalsMove quickly through entry modes. Example are China’s white-goods multinational Haier. A company develops unique capabilities in their home market that need to be rolled out quickly worldwide before competitors catch up. Haier became very skilled at very efficient production of its whit goods, providing a cost advantage that is transferable outside its Chinese manufacturing base. This is largely based on acquisitions....