International Strategy

Motives, Market Entry, Strategies etc.

Historical Development
Trade The International Company The Multinational Company The Transnational Company The Global Company
International

Globalisation Debate
Space

and time contracting - Global Village Everywhere is becoming like everywhere else Consumer convergence Search for scale and cost advantages Worldwide sourcing for production Global production Falling of trade barriers

Globalisation Cont.
Push

Factors - factors that force a firm to contemplate moving from their home market Pull Factors - those factors that attract firms into international markets

Standardization
Push Factors Pull Factors

Standardization

Standardization
Push Factors Pull Factors

Standardization

Consumer Convergence

Standardization
Push Factors Pull Factors

Standardization Global Village

Consumer Convergence

Or To Put It Another Way

Drivers for International or Global Potential Government Drivers Competitive Drivers Market Drivers Cost Drivers

Industrial Globalisation Drivers Detailed

Common customer needs Global customers Global channels Transferable marketing
MARKET DRIVERS

Global scale economies Steep experience curve

COST DRIVERS

INDUSTRY GLOBALISATION POTENTIAL

GOVERNMENT DRIVERS

Favourable trade policies Compatible technical standards

Low transportation costs High product development costs Need for technology transfer
COMPETITIVE DRIVERS

Differences in country costs (incl. Fx)

Common marketing High exports regulations High imports Interdependence of countries Competitors from different countries Globalised competitors

BUT I Prefer This

International Development : Push Factors Pull Factors Method Direction

Push and Pull Factors Affecting International Growth

Push Factors Motives
Saturated home market Limited growth Escape from inflation Increasing regulation Costs Competition in home market increasing

Pull Factors Motives

International Growth
Method of Growth
Licensing Agents Franchising Joint development Acquisition New development

Follow customer Internationalisation of industry Create international network Competitive drivers Market liberalisation

Direction of Growth

Market Entry Issues

Alternative Methods of Foreign Market Entry

Production in Home Market
Foreign Production Sources Indirect Export Direct Export
Agents Distributors Assembly Operations Contract Manufacturing Export Trad. Co. Licensing / Franchising Joint Ventures Wholly Owned Export Management Co.
Source: Young, Hamill, Wheeler & Davis

Via Domestic Sales

Modes of Entry into Foreign Markets

Indirect Direct Licensing JV Direct Investment

Amount of Commitment, Risk, Control and Profit Potential

Low

High

Source: Kotler P Marketing Management 6th Edition

Factors Affecting Foreign Market Entry Mode Decision

External Factors
Target Country Market Factors

Target Country Environmental Factors

Target Country Production Factors

Home Country Factors

Foreign Market Entry Decision

Company Product Factors

Internal Factors

Company Resource Commitment Factors

Source: Root F, Foreign Entry Strategies, 1982

Definition of Inward Investment

Inward investment involves the acquisition of
productive assets in a country other than ones own. Source: Breach & Sharp, 1984 FDI is an investment which is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investors purpose being to have an effective voice in the management of the enterprise.
Source: Thomsen & Nicolaides, 1991

The Meaning of Direct Investment

For direct investment to take place, control must follow the investment It usually implies ownership of between 1025% of the voting stock BUT 100% of stock does not guarantee control, as the government or vital resource supplier may exert substantial influence on the company

Direct Investment may take many forms:

A new venture by a company with no previous interest in for example the UK An extension of an existing subsidiary A take over of existing assets

Three basic sources of Advantage from Direct Investment

Firms ownership advantage Country specific advantage Advantages of direct investment over licensing

Firms ownership advantages

Usually one of two types: Those that derive from the structure of the multinational corporation itself
privilege access to materials, finance, or markets conferred on it by it size and geographical dispersion

Those that derive from an exclusive asset or expertise possessed by the firm
Proprietary technical knowledge relating to products and processes

Country - specific advantages

Cost and availability of key resources The character and size of the domestic market Governmental line on innovation, protection of property rights, and competition policy Fiscal incentives for inward investments Trade restrictions

Advantages of direct investment over licensing

Firm can maintain control over overseas production Firm can internalise the new market, rather than selling off rights to local company Exploitation of countries tax regimes and legal system may be possible

Economic motives for direct inward investment

To reduce production charges by using cheaper foreign inputs such as low wage labour To supply a market that is closed to imports through trade restrictions Escape from unfavourable conditions Avoid import barriers

Market-specific Motives
Produces need to be as close as possible to the consumer. Profitability after saturation Market opportunity Access to factor resources Purchase of knowledge

Market-specific Motives contd.

To eliminate foreign competitors through takeovers. To avoid distance factors associated with exporting from the host country

Impacts of inward investment

Creation of jobs More disposable income Improve standard of living Balance of payment impact Cheaper products due to lack of import restrictions Possible increase in market share

Impacts contd.
Possible increase in competition for local businesses Other industry Undermining protectionism efforts

Why FDI and not Exports into the EU ?

IMPLICATIONS OF 1992
Non Tariffs Access to Large Market

IMPLICATIONS OF EMU Etc. IN-TANGIBLE ASSETS

Ownership Advantages Internalisation Advantages

WHAT ABOUT THE REST OF EUROPE?

Elements of Global Organisation

Global strategy information system Cross-country coordination Centralised global authority

Global strategic planning

Global budgeting Global performance review and compensation

ORGANISATION STRUCTURE

No international division Strong business dimension

MANAGEMENT PROCESSES

ABILITY TO DEVELOP AND IMPLEMENT GLOBAL STRATEGY

PEOPLE

Global identity
Commitment to world-wide (v. domestic) employment Interdependence (v. autonomy) of businesses

Use of foreign nationals Multi-country careers Frequent travel

CULTURE

Statements and actions of leaders

Source: Adapted from YIP, Loewe and Yoshimo (1988)

Any Questions ?