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									 Business Strategy & Policy
 PSU MGMT #562

            International Strategy

                             Dave Garten
                daveoutside@alum.mit.edu


10/3/2012                                  1
    DeBeers Case
           Objective: look at how monopoly power affects
           organizations & global industry -- how govt.
           policy & competitive forces seek to change it.
        Learnings:
           Antitrust policy is ultimately tied to
            consumers
           Even the most powerful organizations
            have to react to a changing environment
           It takes many years to bring down or build
            a powerful position.
           Changing business models is frightening
            and risky – it is generally accompanied by
X
            resistance.
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Session Objectives
To Gain an Initial Understanding of:
1. Economic Value of International Strategies (Why?)
2. Options, Barriers and Approaches (What?)
3. Execution Considerations (How?)
4. Organizational Responsibilities (Who?)




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Int’l Growth Drivers (Why?)
    Lowering of Intl Barriers
    Improving logistics infrastructure
    Improving communications
    infrastructure
    Increasing standards
    Heightened competition




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 Why go International?
               Intel


                                                100%




                                    Revenue
                                                 80%

                                                 60%

                                                 40%                       APAC
                                                                           EMEA
                                                 20%
                                                                           Americas

                                                 P&G: Steady int’l growth
                                                  0%




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Source: Intel Annual Report, 2004


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Int’l Strategy Drivers (Why?)

                                                          Gain access to new customers

                                                          Gain access to low-cost
                                                          factors of production
  International
   Economies                                              Develop new core
    of Scope                                              competencies
                                                          Leverage current core
                                                          competencies in a new way

                                                           Manage corporate risk
Derived from: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 518


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Access to New Customers
                                                             Market Growth

            Customer that are willing to buy
                                                             Segmentation
        Customer that are able to buy

                                                             Targeting

                     Target                       Product
                                                  Price
                     Market                       Place
                                                  Promotion



                                                                 $
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Access to New Customers - Barriers
        Tariffs                    Quotas                     Nontariff Barriers
 Taxes levied on         Quantity Limits on the              Rules, Regulations,
 Imported Goods or       Number of Products or               and Policies That
 Services                Services that can be                Increase the Cost of
                         imported                            Importing Products or
                                                             Services
 Import Duties           Voluntary quotas                    Govt. Policies
 Supplemental Duties     Involuntary quotas                  Govt. procurement
 Variable levies         Restricted import licenses          procedures
 Border levies           Minimum Import limits               Govt. sponsored export
 Countervailing duties   Embargoes                           subsidies
                                                             Custom policies
                                                             Quality standards


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Access to Supply Chain
    Raw Materials
    Labor
           Manual Labor
           Knowledge Workers
           R&D
    Technology




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   Options, Barriers, and
   Approaches (What?)
   What key issues must be
   addressed with your strategy?




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Challenges & Opportunities
1. Heterogeneity across markets
2. Scale and Complexity of Global
   Operations
3. Unpredictability of economic
   conditions between countries
   (volatility)




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International Risk Factors
    Financial – Complexity, Variability
           Currency
           Credit
           Inflation
    Political Risks
           Macro scale
           Micro scale
    Relationship Risks
           Communication/Culture
           Objectives
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Execution Considerations (How?)

   VRIO?




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Imitators
    Direct Duplication of International
    Strategy
           Will competing firms try?
              Profits/market share motivate
           Are they able?
    Substitutes
           Strategic alliances, diversification, M&A




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Growth Strategies

New Markets       Moderate Risk
                                               High Risk
                                              Access new
                    Access new               customers with
                     customers                    new
                                             competencies

                                              Moderate Risk
Current
Markets
                   High or Low               Develop new
                      Risk                 competencies or
                                           leverage current
                   Do nothing              competencies in
                                               new way

              Current Business                   New Business
                     or                               or
                Competency                        Competency

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Market entry options




Source: Berkowitz
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   Organizational Considerations




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      Int’l Strategy: Organization
Local Responsiveness


                       Multinational




                                                                         Global

                                            Cost Efficiency
X
          10/3/2012                    Dave Garten – Business Strategy            18
Appropriate Organizational Structure
               High

                                                                                                    Transnational
                               Decentralized                                                          federation
 Importance of                  federation
      local
 responsiveness

                                          Coordinated
                                           federation

                                                                            Centralized
                                                                               hub
                Low
                        Low                       Importance of global integration                             High


 Source: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 546


  10/3/2012                               Dave Garten – Business Strategy                                           19
  Organizational Structures

Decentralized      Coordinated
                                          Transnational        Centralized Hub
 federation         federation

 •Full P&L       •Full P&L               •Full P&L             •P&L
 •High Autonomy •High Autonomy           •Autonomy             •Low Autonomy
 • Duplication   • Some Centralized • Some Centralized         • Execution Focus
                 Strategy           Strategy
                                                               • Centralized
                 • Less Duplication      • Regional            Strategy
                                         specialization
                                                               • Less Duplication
                                         • Global leverage
                                         of competencies



   10/3/2012                 Dave Garten – Business Strategy                    20
Strategies for Emerging Markets
  Then vs. Now
       Then: low cost production, opportunistic export/marketing.
       Now: revenue opportunities. Disposable income, reach of
        media/internet
  High risks: political, economic & infrastructure
       Distribution, market data, communications, instability/lack of
        regulatory discipline, product diversion, counterfeiting, complex
        networks.
  Yet…opportunities…each situation is unique
       General classification mask the complexities (ex: China GDP)
       Political and social systems, openness , product markets, labor
        markets, capital markets
  Corporate control very problematic
       basis of business/competition so different (Local norms vs. MNC)

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Strategies for Emerging Markets
  Long Term Market Potential



                               Platform Investments                              Leading Markets
                   High


                                        Russia                                      China, India, Brazil




                                 Trailing Markets                                   Aggressive
      Low




                                  Sub-Saharan Africa                               Investments
                                                                            Chile, Czech, South Africa

                                         Low                                High
                                                      Convertibility of profit
                                     Source: New Strategies in Emerging Markets by David J Arnold and John A Quelch, SMR, 1998.

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Implications for International Strategy
  Global expectations change the game
       Standards set at the global level -> launch globally
  Global sourcing
       Clusters of competitive advantage are dispersed
          Suppliers, consumers, R&D, marketing, production
       Productivity a key criteria for placement
  Managed tension of global vs. local
       Commonality (efficiency) w/ local requirements
       Overseas assignments, frequent communication

    “A desk is a very dangerous place from
          which to view the world…”
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