BEC-DOMS PPT ON International Strategy and Management by BabasabPatil

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									International Strategy and
                 Core Topics
 International growth strategy
   Global, international, multidomestic
 Entering foreign markets
   Market selection, timing, operational decisions
 Entry modes
   Exporting, licensing, franchising, joint ventures,
    strategic alliances,
 Global marketing strategy
 Global manufacturing strategy
            Additional Topics
 Globalization
   Drivers, consequences, success factors
 Global ethics
   Impact on business
 Culture
   Determinants, impact on business
 Foreign exchange
 International human resource management
 Global Business Today
   Charles W.L. Hill; Irwin
       Mastering Global Markets
       Czinkota, Ronkainen, and
       Donath; Thompson

    Total Global Strategy
    George S. Yip; Prentice Hall
 Lecture / Discussion
   Slides on web (before, complete)
 Exercises
   Hill – GlobalEDGE
 Case studies
 Simulation: Country Manager
   Interpretive Software
 The way it was….
   Self-contained national economies, isolation,
    differences in govt., culture, and business systems
 The way it is…
   Reduced barriers (GATT, tariffs), shrinking
    distance (technology, transportation, culture),
    interdependent economies
     Sample slides
                Tariff Rates
    Average Products as % of Value)

             1913   1950   1990   2000
France        21     18     5.9    3.9
Germany       20     26     5.9    3.9
Italy         18     25     5.9    3.9
Japan         30            5.3    3.9
Holland       5      11     5.9    3.9
Sweden        20      9     4.4    3.9
Britain              23     5.9    3.9
U.S.          44     14     4.8    3.9
              Growth – World Trade &




1000                                              Output


       1950    1960   1970   1980   1990   2000
  National Composition of MNCs
8000      1973    1990    1997         2000
          48.5%   31.5%               26%
                          32.4% Rest of World
5000                              Latin America
Japan      3.5     12      15.7           17
4000                              W.Europe
3000      18.8     6.8     6.6            8
                                  Asia Pacific
                                  North America
1000       7.3    10.4     9.8            13
Germany    8.1     .9      12.7           12
      The Changing World Order
 The fall of Communism in Eastern Europe and
  the former Soviet Union.
 Czechoslovakia has divided itself into two states.
 Yugoslavia has divided into 5 (often warring)
  successor states.
 Pro-democracy movement (suppressed) in China.
 Latin America has seen both democracy and free
  market reforms.
 Driving to work: The typical “American”
     Your car
     Your gasoline
     Your investments
     Your entertainment
     Your morning snack
     Your news
 “Has Globalization Gone Too Far?”
   Rodrik - California Management Review, Vol.
    39, No. 3, Spring 1997
 What are the tensions between social stability
  and globalization?
   The Impact of Globalization
Jobs and income
Firms move jobs to low cost countries
Countries specialize in efficiently produced
goods and import those they can not efficiently
Increases income in less developed countries
May lead to income inequality
   The Impact of Globalization
Labor policies and the environment
Firms move to countries with weak laws
Economic progress leads to stronger laws
By creating wealth and incentives for
technology improvements, world will be better
Tie strong laws to international agreements
  What makes a company global?
 “What Makes a Company Global”
   Kogut - HBR Reprint 99106
 Multinational / Multidomestic
   Products differ greatly among country markets;
    high transportation costs, no scale economies
 Global
   Benefit from worldwide volume; larger
    production plants (MES), larger production runs,
    more efficient logistics networks, higher volume
    distribution networks
            Global Success Factors
   Industry potential
   Timing
   Entry barriers
   First mover advantage
     Preempting leading positions in NICs
     Create switching costs
     Block access to supply chain
 Arbitrage – exploiting differences
     Culture, administration, geography, economics
     “The Forgotten Strategy”
          Ghemawat - HBR Reprint R0311E
Global Ethics
       Guiding Principles
Three Guiding Principles
Respect for core human values, which
determine the absolute moral threshold
for all business activities.
Respect for local traditions.
The belief that context matters when
deciding what is right and what is wrong.

  “Values in Tension: Ethics Away From Home”
        Donaldson – HBR Reprint 96502
         Global Ethical Perspective
Treat corporate values and formal standards as absolutes.
Design and implement conditions of engagement for
  suppliers and customers.
Allow foreign business units to help formulate ethical
  standards and interpret ethical issues.
In host countries, support efforts to decrease institutional
Exercise moral imagination.
              Global Ethics
Incentives to be ethical
Avoid legal penalties, bad PR, employee
Ethics and corruption
Foreign Corrupt Practices Act 1977
Ethics and human right
China & Tibet
Alien Tort Statute 1789 – Unocal in Myanmar
                         Ethics and Corruption
After graduating, your first assignment lands you in Asia as the local director of a U.S. pharmaceutical firm. It was a
small operation, but you have big plans. You hope to segment your customers, empower your workers, implement just-
in-time production, and use the balanced scorecard to keep score. You figure to double your business in the first year.

But right now, you’re thinking it might have been a better idea to take that consulting offer instead.
The first million-dollar shipment of your company’s new HIV-fighting drug has just been removed from the refrigerated
C-130 cargo plane. It sits on the steaming tarmac, not 30 feet away, practically melting in the midday heat. Another
twenty minutes, and it’s ruined. Unfortunately, you can’t seem to clear it through customs. There is some question as to
the approval process that a new product has to go through to enter the country. You’re not sure you can wait.

The friendly local customs official cruising around the airport looks from you to the metal container, trying to decide
which of you is sweating more profusely. Leaning against the counter, he reviews your bills of lading and other customs
documents. “Your papers look to be in order, but I am just not sure about the proper approval process,” he says. You
despair. Re-opening the approval process will take time you don’t have. What should you do?!?

Fortunately, you remember the $1000 traveler’s check in your back pocket that’s supposed to pay for your apartment
deposit. You walk over to the official, grab the manifest, stuff the check into the stack of papers, and hand it back to
him. A smile spreads across his face. He decides that his insecurity about the approval process has lessened. “You are so
thoughtful to understand. I look forward to conducting further business with you. Your cargo is cleared through
             Global Ethics - Case
Hitting the Wall: Nike and International Labor
Practices – HBS 9-700-047
Managing a multinational firm involves managing
and exploiting differences among countries. In the
case of workplace standards and environmental
protection, managers have to understand the
underlying tradeoffs and balance exploitation of
differences with global ethics.
Culture is a system of values and norms
  Norms
shared among a group of people and, when
    Social rules and guidelines that prescribe appropriate behavior
       together, constitute a design for living.
taken in particular situations
      Folkways:
        Routine conventions of everyday life
      Mores:
                                       Abstract ideas about what a
        Central to functioning of society and its social life
                                       group believes to be good, right,
                                       and desirable
                                       The bedrock of culture
                                       Have emotional significance.
      What are “American Values?”
Achievement and





      Views of Another

How the Americans                               How the French
see the French:                                 see the Americans:
-arrogant                                       -naive
-flamboyant                                     -aggressive
-hierarchical                                   -unprincipled
-emotional                                      -workaholic

            French culture                      American culture

                             Norms and Values
Theory and empirical foundation is        U.S.
used in a general way to look at
differences between cultures.
5 dimensions
Power distance
Individualism vs. collectivism
Uncertainty avoidance
Masculinity vs. femininity               China

ST vs. LT orientation
Don’t assume everyone in a country has
the same norms and values
Determinants of Culture


 Education       Culture:
                Norms and
  Political      Systems


      Religion Distribution   Christian
                              (1.2 Billion)

                20%           Islam
                              (1 Billion)


                              (500 Million)

                              (250 Million)

      4%         10%          Confucian
           5%                 (150 Million)

   Impact of Religion on Business
 Buddhism
   Little emphasis on entrepreneurial behavior
 Christianity
   “Protestant Work Ethic” and “The Spirit of Capitalism”
 Confucianism
   Loyalty, reciprocal obligations, and honesty in dealings
 Hinduism
   Asceticism may have an impact (spiritual achievements)
   Caste system plays a role
 Islam
   Favors market-based systems (free enterprise)
   No payment or receipt of interest
Allows people to communicate
Structures the way the world is perceived
Directs attention to certain features of the world
rather than others
Helps define culture
Creates separatist tendencies?
Canada, Belgium, Spain, Cyprus
Non-verbal (93% of communication)
Eyebrows, fingers/thumbs, hand gestures, feet,
personal space, body gestures (ok, thumbs up)
                             For int’l business, it is a
      Formal education       determinant of national
   supplements family role    competitive advantage
      in teaching values            (post-war Japan)

          and norms
                                                              Medium to learn
                                                           language, conceptual,
                                                              and math skills

                                                        Focus on facts of social
                                                          and political nature
                                                              of society
Value of personal
achievement and
                                                       Obligations of
              Political Philosophy (System)
        Democracy and Totalitarianism
Democracy                              Totalitarianism
Government by the people,              Government in which one person or
exercised either directly or through   political party exercises absolute
                                       control over all spheres of human
elected representatives.
                                       life and opposing political parties
                                       are prohibited.
        Economic Philosophy (System)
   Market Economy
       All productive activities are privately owned
   Command Economy
       Goods and services produced, their quantity, and prices are
        determined by the government
   Mixed Economy
       Parts of the economy are left to private ownership and free
        market mechanisms while other sectors are state-owned and have
        government planning
   State-Directed Economy
       The state plays a significant role through its “industrial policy”
        and setting national goals
       Social Structure
Individuals vs. Groups
Shared sense of identification
Degree to which group is viewed as the primary means of
social organization
Cooperation – MIT Study
Social Stratification
Social strata
Social mobility
Class system
        Cultural Change
Global brands
McDonald’s in China
Levi’s in India
Sony Walkman in South Africa
MTV everywhere
•Quebec, Russia, Islamic
                Culture - Case

Euro Disney: The First 100 Days” – HBS 9-693-
Planning process
The role of culture
Differences in culture vs. attitude about culture
Adapting versus adopting – what is core?
Foreign Exchange
 Foreign Exchange & Strategy
“Note on Operating Exposure to Exchange-Rate
Luehrman – HBS 9-288-018
Example: Losses at JAL Airlines (Hill)
Case: Japan’s Automakers Face Endaka – HBS 9-
Impact on business model - What they sell, how they sell,
where they manufacture, manufacturing process
Japanese response vs. U.S. response
Foreign Exchange Markets
      Foreign Exchange Markets
 The FOREX market provides the physical and
  institutional structure through which the money of
  one country is exchanged for that of another country
 A foreign exchange transaction is an agreement
  between a buyer and a seller that a fixed amount of
  one currency will be delivered for some other
  currency at a specified rate
       Foreign Exchange Markets
 There are six main characteristics of the FOREX
  markets which will be discussed
      The geographic extent
      The three main functions
      The market’s participants
      Its daily transaction volume
      Types of transactions including spot, forward and swaps
      Methods of stating exchange rates, quotations, and
       changes in exchange rates
    FOREX Market Geography

 Geographically, the FOREX market spans the globe
  with prices moving and currencies trading on a 24
  hour basis
 Major exchanges are located in Singapore, Hong
  Kong and Tokyo in the East
 Then it moves to Bahrain, and London for the
  European area
 And on to New York, San Francisco and Sydney
         FOREX Market Geography
  Measuring FOREX Market Activity: Average Electronic Conversations Per Hour






                                                                                   Greenwich Mean Time
         1   2   3   4   5   6   7   8   9     10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

      10 AM    Lunch Europe           Asia         Americas London     Afternoon      6 pm Tokyo
     In Tokyo In Tokyoopening        closing        open    closing   in America     In NY opens
      FOREX Market Functions

 The FOREX market is the mechanism by which
  participants transfer purchasing power between
  countries, obtains or provides credit for international
  trade, and minimizes exposure to exchange rate risk
    Transferring of purchasing power is necessary because
     international trade and capital transactions normally
     involve parties in countries with different currencies yet
     each party wishes to transact in their own currency
   FOREX Market Functions

 Because the movement of goods between countries takes
  time, inventory in transit must be financed. The FOREX
  market provides a source of credit via specialized
  instruments such as letters of credit
 The FOREX market provides “hedging” facilities for
  transferring foreign exchange risk to someone else more
  willing to carry that risk
                  FOREX Market
   The FOREX market consists of two tiers, the interbank or
    wholesale market, and the client or retail market
   Five broad categories of participants operate within these two
       Bank and non bank foreign exchange dealers
       Individuals and firms conducting commercial or investment
       Speculators and arbitragers
       Central banks and treasuries
       Foreign exchange brokers
             Bank/Non-Bank Dealers

      These participants profit from buying currencies at a bid price
       and then reselling them at an offer or ask price
      Competition among dealers narrows the spread between the
       bid and offer rate contributing to the market’s efficiency
      Dealers on behalf of large international banks often act as
       market makers, often willing to stand in and buy or sell these
       currencies without having a counterpart with which to unload
       the “inventory”

Bid price: The price a buyer is willing to pay.
Offer (Ask price): the price a seller is willing to receive.
Bid-Ask spread: The amount that the ask price exceeds the bid.
Market maker: A broker-dealer willing to accept the risk of holding a particular
currency in order to facilitate trading in that currency.
        Bank/Non-Bank Dealers

   They trade amongst other banks and dealers in order to keep
    their inventory levels at manageable levels
   Currency trading is profitable and often contributes between
    10% - 20% of a banks’ average net income
   Small- to medium-sized banks rarely act as market makers yet
    still participate in the interbank market
       Commercial Investment

 Importers, exporters, portfolio investors, MNEs,
  tourists and others use the FOREX market to
  facilitate execution of commercial or investment
 Some of these participants use the market to hedge
  foreign exchange rate risk
       Speculators & Arbitragers

   Speculators and arbitragers seek to profit from trading in the
    market itself
   They operate for their own interest, without need or
    obligation to serve clients or ensure a continuous market
   Speculators seek all their profit from exchange rate changes
   Arbitragers try to profit from simultaneous differences in
    exchange rates in different markets
   A large proportion of speculation and arbitrage is conducted
    on behalf of major banks by traders employed by those banks
      Central Banks & Treasuries

   Central banks and treasuries use the market to acquire or
    spend their country’s currency reserves as well as to influence
    the price at which their own currency trades
   They may act to support the value of their currency because
    of their government’s policies or obligations or because of
    commitments entered through joint float agreements such as
    the European Monetary System (EMS)
   Consequently their motive is not to profit but rather influence
    the foreign exchange value of their currency in a manner that
    will benefit their interests
       Foreign Exchange Brokers

   Foreign exchange brokers are agents who facilitate trading
    between dealers without themselves becoming principals in
    the transaction
   For this service they charge a small commission
   They maintain instant access to hundreds of dealers
    worldwide via open lines and at times may maintain such
    lines with several banks, with separate lines for differing
    currencies, spot and forward rates
   Any Questions?

Types of transactions
                  Inter-Bank Market
   Transactions within this market can be executed on a spot,
    forward, or swap basis
       A spot transaction requires almost immediate delivery of foreign
       A forward transaction requires delivery of foreign exchange at some
        future date
       A swap transaction is the simultaneous exchange of one foreign
        currency for another
                   Spot Transactions

   A spot transaction in the interbank market is the purchase of
    foreign exchange, with delivery and payment between banks
    to take place, normally, on the second following business day
       The settlement date is often referred to as the value date
       This is the date when most dollar transactions are settled through the
        computerized Clearing House Interbank Payment Systems (CHIPS) in
        New York
                    Outright Forward
   This transaction requires delivery at a future value date of a
    specified amount of one currency for another
   The exchange rate is agreed upon at the time of the
    transaction, but payment and delivery are delayed
   Forward rates are contracts quoted for value dates of one,
    two, three, six, nine and twelve months
       Terminology typically used is buying or selling forward
       A contract to deliver dollars for euros in six months is both buying
        euros forward for dollars and selling dollars forward for euros
                  Swap Transactions

   A swap transaction in the interbank market is the
    simultaneous purchase and sale of a given amount of
    foreign exchange for two different value dates
   Both purchase and sale are conducted with the same
   A common type of swap is a spot against forward
       The dealer buys a currency in the spot market and simultaneously
        sells the same amount back to the same bank in the forward market
       Since this transaction occurs at the same time and with the same
        counterpart, the dealer incurs no exchange rate exposure
                  Swap Transactions

   Forward-forward swaps – A dealer sells £20,000 forward
    for dollars for delivery in two months at $1.6870/£ and
    simultaneously buys £20,000 forward for delivery in three
    months at $1.6820/£
       The difference between the buying and selling price is equivalent to
        the interest rate differential
       Thus a swap can be viewed as a technique for borrowing another
        currency on a fully collateralized basis
                  Swap Transactions

   Non-deliverable forwards (NDFs) – NDFs possess the same
    characteristics as traditional forward contracts except that
    they are settled only in US dollars and the foreign currency
    being sold or bought forward is not delivered
       The dollar-settlement feature reflects the fact that NDFs are
        contracted offshore and are beyond the reach and regulatory
        frameworks of the home country governments
       Pricing of NDFs reflects basic interest rate differentials
          FOREX Market Size

 The Bank for International Settlements (BIS)
  estimates that daily global net turnover in
  traditional FOREX market activity to be
  US$1,210 billion in April 2001
                   FOREX Market Size
                         Global Foreign Exchange Market Turnover
                       (daily averages in April, billions of US dollars)


700                 Spot
600                 Swaps






           1989           1992            1995            1998             2001
Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and
Derivatives Market Activity in April 2001,” October 2001, Next survey planned for April
                FOREX Market Size

   Two of the three categories fell between 1998 and 2001 with
    spot market daily turnover falling the most, from $568 billion
    in 1998 to $387 billion in 2001
   Forward transactions increased slightly from $128 billion in
    1998 to $131 billion in 2001
   Swaps fell to $656 billion in 2001 from $734 billion in 1998
       BIS attributes the introduction of the Euro, the growing share of
        electronic broking in the spot market and consolidation in banking as
        explanations for the reduction
                      FOREX Market Size
           Geographic Distribution of Foreign Exchange Market Turnover
                         (daily averages in April, billions of US dollars)

700                  United States
                     United Kingdom
500                  Singapore




           1989                1992                1995                1998                2001
 Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and Derivatives
         Market Activity in April 2001,” October 2001, Next survey planned for April 2004.
                       FOREX Market Size
         Currency Distribution of Global Foreign Exchange Market Turnover
                       (percentage shares of average daily turnover in April)

90                                                                                  US dollar
80                                                                                  euro
70                                                                                  French franc
                                                                                    EMS currencies
                                                                                    Japanese yen
50                                                                                  Pound sterling
                                                                                    Swiss franc




         1989               1992              1995             1998             2001
 Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and Derivatives
         Market Activity in April 2001,” October 2001, Next survey planned for April 2004.
            FOREX Rates & Quotes

   A foreign exchange quote is a statement of willingness to buy
    or sell at an announced rate
       In the retail market (newspapers and exchange booths), quotes are
        often given as the home currency price of the foreign currency
   Interbank quotes – professionals state forex quotes in one of
    two ways
       The foreign currency price of one dollar
           Sfr1.6000/$, read as 1.600 Swiss francs per dollar
           European quote
       The dollar price of a unit of foreign currency
           $0.6250/Sfr, read as 0.625 dollars per Swiss franc
           American quote
         FOREX Rates & Quotes

 The former quote is considered the “European
  quote” and the latter is the “American quote”
 Almost all European currencies, except two, are
  quoted the European way
    The Pound Sterling and the Euro are the exceptions
    Additionally, Australian and New Zealand dollars are also
     quoted in American terms
         FOREX Rates & Quotes

 Bid and Ask Quotations
   Interbank quotes are given as a bid and ask
        The bid is the price at which a dealer will buy another currency
        The ask or offer is the price at which a dealer will sell another
             Example: ¥118.27 - ¥118.37/$ is the bid/ask for Japanese yen
             The bank will buy yen at ¥118.27 per dollar and sell yen at ¥118.37
              per dollar making profit on the spread
          FOREX Rates & Quotes

 Expressing Forward Quotations on a Points Basis
    The previously mentioned rates for yen were considered
     outright quotes
    Forward quotes are different and typically quoted in terms
     of points
    A point is the last digit of a quotation, with convention
     dictating the number of digits to the right of the decimal
         Hence a point is equal to 0.0001 of most currencies
          FOREX Rates & Quotes

 Expressing Forward Quotations on a Points Basis
    The yen is quoted only to two decimal points
    A forward quotation is not a foreign exchange rate, rather
     the difference between the spot and forward rates
    Example:

                                  Bid       Ask

        Outright spot:           ¥118.27   ¥118.37

        Plus points (3 months)     -1.43     -1.40

        Outright forward:        ¥116.84   ¥116.97
            FOREX Rates & Quotes

   Forward Quotations in Percentage Terms
       Forward quotations may also be expressed as the percent-per-annum
        deviation from the spot rate
           This is similar to the forward discount or premium calculated earlier
       The important thing to remember is which currency is being used as
        the home or base currency
           For indirect quotes (i.e. quote expressed in foreign currency terms), the
            formula is

                     Spot  360
                  f 
                          x  100
           FOREX Rates & Quotes

   Forward Quotations in Percentage Terms
          For direct quotes (i.e. quote expressed in home currency terms), the
           formula is

                        x  100
             FOREX Rates & Quotes

   Forward Quotations in Percentage Terms
       Example: Indirect quote

                
        f         2.32%
              x 100p.a.
       Example: Direct quote

f  $
             p.
          xx 2.3
       5  90
          FOREX Rates & Quotes

 Direct and Indirect Quotes
    A direct quote is a home currency price of a unit of a
     foreign currency
         Sfr1.6000/$ is a direct quote in Switzerland
         $0.625/Sfr is a direct quote in the US
    An indirect quote is a foreign currency price in a unit of
     the home currency
         Sfr1.600/$ is an indirect quote in the US,
         $0.625/Sfr is a direct quote in the US and an indirect quote in
            FOREX Rates & Quotes

   Cross Rates
       Many currencies pairs are inactively traded, so their exchange rate is
        determined through their relationship to a widely traded third currency
       Example: A Mexican importer needs Japanese yen to pay for
        purchases in Tokyo. Both the Mexican peso (Ps) and Japanese yen (¥)
        are quoted in US dollars
           Assume the following quotes:

                          Japanese yen      ¥121.13/$
                          Mexican peso      Ps9.190/$
            FOREX Rates & Quotes

   Cross Rates
       The Mexican importer can buy one US dollar for Ps9.190 and with
        that dollar buy ¥121.13; the cross rate would be

          ¥ 121.13/$
              . /
               ¥ 13 S
          P /
    Mexican $
         FOREX Rates & Quotes

 Intermarket Arbitrage
    Cross rates can be used to check on opportunities for
     intermarket arbitrage
    Example: Assume the following exchange rates are quoted

            Citibank             $0.9045/€
            Barclays Bank        $1.4443/£
            Dresdner Bank        €1.6200/£
       FOREX Rates & Quotes

 Intermarket Arbitrage
   The cross rate between Citibank and Barclays is
                      € 1.5968/

     This cross rate is not the same as Dresdner’s rate quote
      of €1.5800/£, so an opportunity exists for risk-less
         FOREX Rates & Quotes
                   End with $1,014,533               Start with $1,000,000

                (6)   Receive $1,014,533       (1)     Sell $1,000,000 to Barclays
                                                       Bank at $1.4443/£

      Dresdner Bank                                           Barclays Bank
(5)   Sell €1,121,651 to Citibank                       (2)   Receive £692,377
      at $0.9045/€
                                                        (3)   Sell £692,377 to Dresdner Bank
(4)   Receive €1,121,651                                      at €1.6200/£
Managing Global Expansion
    Managing Global Expansion
 “Managing Global Expansion: A Conceptual
   Gupta & Govindarajan – Business Horizons,
    March/April 2000, 45-54 (Reprint BH043)
   Globalization imperatives
   Degree of local adaptation
   Learning potential
   Entry barriers
   Competitive intensity
            Entry Modes


                                  Wholly Owned
Exporting                         Subsidiaries
                                                  Sony TVs, Matsushita VCRs

    Ship to another country for sale or exchange
    Advantages:
         Avoid cost of establishing manufacturing operations
         Help achieve experience curve and location
May compete with low-cost location
Possible high transportation costs
Tariff barriers
Possible lack of control over marketing reps
Example: Heineken Beer (Hill)
     Improving Export Performance

                       Export Management           Export
   Information from
                           Companies             strategies
  government sources     Export specialists   Top management              who act as the       commitment                export              Start small
                        management                                 Enter to learn, add to
                        department or        grow
                                            Build relationships
                        department for
                        client firms        Hire locals
        An Interesting Fact
Although the U.S. is the largest single market,
exporting does not seem to come naturally to
U.S. companies. In the U.S., exports account
for 5.4% of GNP compared to 26% in
Germany, 25% in Canada, and 10.5% in
Japan (not most recent statistics).
      globalEDGE – Core Exercise
                Advanced Biomedical Devices, Inc.
                Assessment of Readiness to Export
Team In-Class Exercise (50 points)
•Your team has been “hired” to evaluate ABD’s readiness to export.
•Drawing on information from the case, your knowledge of factors
 affecting global expansion, and what you learn from the CORE
 diagnostic tool, prepare a two-page (double-spaced) memo with
 your team’s assessment and recommendations.
•You may structure the memo however you see fit.
•Attach the CORE output as supporting documentation.
•The memo is due in two hours. The break-out rooms are available.
                                                      Euro-Disney Japan
 Licensor grants rights to intangible property to
  another entity for a specified period of time in
 Advantages:
    Reduces development costs and risks of establishing
     foreign enterprise
         Lack capital for venture; Unfamiliar/volatile market
    Overcomes restrictive investment barriers
    Others can develop business applications of intangible
 Disadvantages:
    Lack of control
    Cross-border licensing may be difficult
 A franchiser sells intangible property and provides
  guidelines for operating the business.
 Advantages:
    Reduces costs and risk of establishing enterprise
 Disadvantages:
    May prohibit movement of profits from one country to
     support operations in another country
    Quality control
               Joint Ventures
 Advantages:
   Benefit from local partner’s knowledge
   Shared costs/risks with partner
   Reduced political risk
 Disadvantages:
   Risk giving control of technology to partner
   May not realize experience curve or location
   Shared ownership can lead to conflict
         Strategic Alliances
 “Collaborate with your Competitors &
   Hamel, Doz & Prahalad – HBR Reprint
   Learning
  Establishing a Wholly Owned Subsidiary
              Acquisition                           Greenfield
 Pro:                                  Pro:
     Quick to execute                      Can build subsidiary it
     Preempt competitors                    wants
     Possibly less risky                   Easy to establish
 Con:                                       operating routines
     Often produce                     Con:
      disappointing results
         Overpay for firm
                                            Slow to establish
         Too optimistic about value        Risky
          creation (hubris)
                                            Preemption by aggressive
         Culture clash
         Problems with proposed
      Selecting an Entry Mode
Basis for Competition          Entry Mode
        Technological   Wholly owned subsidiary unless
         Know-How       1. Venture is structured to reduce
                        risk of loss of technology
                        2. Technology advantage transitory
                        Then licensing or joint venture OK

       Management       Franchising, subsidiaries
        Know-How        (wholly owned or joint

       Pressure for     Combination of exporting and
      Cost Reduction    wholly owned subsidiary
                Which Foreign Markets?
Market potential
Market size (e.g., China vs. Taiwan)
Costs: Customer acquisition, infrastructure
Cultural, administrative, geographic, economic   (Comparisons
– Wal-Mart in Mexico)

Learning potential
Sophisticated/demanding customers?
Pace of technology?
          Wal-Mart de Mexico
Sam’s Club, Mexico City, 1991
Per capita income $2,000
Monterrey 1993 (Laredo)
Distribution problems (no NAFTA yet)
Ice skates, riding mowers, leaf blowers, fishing
1994 (post NAFTA)
Labels on 80,000 products
December: Peso crisis, 40% depreciation
By mid-1997, 373 of 1000 non-US stores
Distribution center
Local sourcing (Sony Wega $1600,$600); scale
Joint venture w/ Cifra (WalMex)
               Timing of Entry
 First-mover advantage.
   Preempt rivals and capture demand
   Build sales volume
   Move down experience curve before rivals and
    achieve cost advantage
   Create switching costs
 Disadvantages:
   First mover disadvantage - pioneering costs
   Changes in government policy          Costs early entrant
                                             bears that later
                                             entrant can avoid.
      Global Expansion - Cases
 Citibank: Launching the Credit Card in
  Asia Pacific (A) - HBS 9-595-026
   Preempting rivals and capturing demand,
    Market entry analysis, market evaluation,
    target market selection, product positioning
 Xerox and Fuji Xerox – HBS 9-391-156
   Importance of structural flexibility,
    autonomy/integration tradeoff, drivers of
    collaboration, multi-market contact
        Where to manufacture?
 “How to Integrate Work and Deepen
   Leonard-Barton, Bowen, Clark, Holloway, &
    Wheelwright – HBR Reprint 94502
 Key factors
   Country: Factor costs, CAGE, location
    externalities, infrastructure
   Technological: Economies of scale, MES,
    manufacturing flexibility
   Product: Value to weight ratio, universality of
           Location Strategy
                                Favored Manufactured Strategy

Country Factors                     Concentrated   Decentralized

 Differences in political economy    Substantial      Few
 Differences in culture              Substantial      Few
 Differences in factor costs         Substantial      Few
 Trade barriers                      Few              Many

Technological Factors

 Fixed costs                         High              Low
 Minimum efficient scale             High              Low
 Flexible manufacturing technology Available          Not Available

Product Factors
 Value-to-weight ratio               High              Low
 Serves universal needs              Yes               No
The Acer Group’s China Manufacturing
Decision – HBS 99M009
Decentralized structure
Role of core competencies
Key considerations
Costs, market presence, infrastructure,
materials management, expats (safety, desire),
labor laws, time frame, environment
PEST framework - environment
(Global Branding)
              Global Branding
 “The Lure of Global Branding”
     Aaker and Joachimsthaler – HBR Reprint 99601
   Advantages
   Disadvantages
   When is it possible?
   Developing a global brand
   Managing a global brand
        Global Branding - Case
 EMDICO (A) – HBS 9-597-029
   Re-launching a global brand in an emerging
   Challenges faced by a late entrant
   Impact of cultural and religious considerations on
    market demand and marketing strategy
   Marketing program calculations
  Developing an Expatriate Policy
 “The Right Way to Manage Expats”
   Black & Gregersen – HBR Reprint 99201
   Benefits: Enhance management experience,
    knowledge transfer, best allocation of people,
    reducing turnover
   Constraints: willingness to travel/live abroad,
    costs, achieving equity (pay, taxes, cost of living),
    impact on career
            Expatriate Policy - Case
       Colgate-Palmolive: Managing International Careers
        – HBS 9-394-184
         Leader in attention and care
         Pre-departure, moving, financial
         Needs of expat AND family
         Compare C-P’s policy to your company’s policy
         Continuous improvement
         Pre-departure concerns, spouse assistance
         Surveys to review and revise
         Effective but costly
         Focus on selection

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