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INTERNATIONAL STRATEGY

Globalization
• Doing or Planning to Expand Business
Globally
• No Distinction Between Domestic and
Global Markets
• Global Business Dynamics for Production
and Other Physical Facilities Irrespective
of National Consideration
INTERNATIONAL STRATEGY
Globalization
• Product Development and Production
Planning for Global Market
• Global Sourcing of Production Factors –
Man power, Technology, Finance, Raw
Material from Best Source in the World
• Global Orientation of Organisational
Structure and Management Culture
INTERNATIONAL STRATEGY
Globalization
• Globalization of Economies, Industries, and
Markets, affects business when firms expand
beyond their domestic borders
How will globalization affect your firm?
• In each arena, globalization presents both
opportunities and threats to a firm
• Globalization can open up new markets for the
firm and it’s competitors
• Understand drivers of the globalization of
economies, industries and markets to
understand opportunities and threats to the firm
INTERNATIONAL STRATEGY
Challenge in a globalized economic environment
• Global economies create a complex business
environment
• Key strategic issues - competition, brand
management, distribution and cross-transfer of
best practices
Understanding the impact of globalization
• When an economy is globalized
• The underlying drivers of the globalization
• The impacts of globalization on a firm
.
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• A country's economy becomes more globalized as the
amount of trade and economic activity across the
country's borders increases in relation to domestic
activity
• An economy whose cross-border economic activity is
highly dispersed throughout different regions of the
world is more globalized than one whose cross-border
flows are concentrated in one or two regions
• The concept of openness is different than the concept
of globalization
Openness of an economy is a necessary condition but
not a sufficient condition.
An open economy ≠ A global economy.
INTERNATIONAL STRATEGY
High
100%

South Germany Zimba-


Africa bwe

India Turkey France Vietnam

Japan USA Kenya Saudi Nether- Ireland


Dispersion Arabia lands

of
Switz- Belgium
Trading erland

Partners B’ Desh Sri Lanka

Nepal

Canada

Low High
0% Cross-border Flows 100%
INTERNATIONAL STRATEGY
Relative Globalization of Various Economies (1999)
Country Cross-border Flows Dispersion of Trading Partners

Nepal 0.05% 16.60%

Bangladesh 27.60% 39.40%

Canada 61.30% 9.00%

Sri Lanka 54.00% 41.40%

Switzerland 61.50% 45.30%

USA 22.00% 56.70%

Japan 17.00% 57.00%

Kenya 42.50% 57.30%

France 40.30% 65.00%

Turkey 39.80% 65.00%

India 23.60% 68.70%

Germany 44.60% 70.90%

South Africa 39.30% 79.90%

Netherlands 72.40% 50.60%

Belgium 87.70% 50.80%

Saudi Arabia 53.30% 57.20%

Vietnam 67.90% 66.00%

Zimbabwe 61.20% 71.90%


INTERNATIONAL STRATEGY
Country's economy becomes more globalized
as the amount of trade and economic activity
across the country's borders increases in
relation to domestic activity

Drivers for Globalization of Economy


• A government's desire to offer its citizens
access to less expensive goods produced
abroad
• A government's active role in capturing
benefits from trade for its domestic firms
• Shifting of government policies and
economic philosophies resulting in reduced
trade barriers
INTERNATIONAL STRATEGY
Drivers for Globalization of Economy
• Reduced transportation costs due to better
roads, increased availability of airline
transportation
• improved ordering and distribution
processes, improved communication
networks
• Technological improvements that facilitate
the exchange of products and services
• The increasing prevalence of English as a
standard business language
Firms to understand why economies globalize and
how globalization impacts the firm
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• To determine the extent to which an
industry is globalized, one needs to
assess two variables
• An industry is considered highly
globalized when the major competitors or
key players, in the industry are competing
around the world in all the major markets
• An industry is considered globalized to the
extent that each of the key players in the
industry has a strategic position that is
similar across different markets
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• The automobile industry is highly globalized
because each of the five largest players—
General Motors, Ford, Toyota, Volkswagen,
and DaimlerChrysler — are present (and,
together, command the greatest market share)
in the North American, South American,
European, and Asian markets.
• Although 37 companies produce automobiles
worldwide, the top five firms accounted for 75
percent of total production in 2000.
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Each of these automobile firms maintains similar strategic


positions across these markets. That is, quality and cost
perceptions relative to other brands are reasonably similar
across regions
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The globalization of industries is achieved when there
are a set of firms, or key players, that are competing
around the world in all the major markets
Drivers for Globalization of Industries
• Key players see opportunities to take
advantage of economies of scale
• Key players see opportunities to take
advantage of resources
• Key players seek to advance their own unique
competitive advantage to capitalize on
opportunities and to establish themselves as
first movers, or gain access to materials and
resources that may be in short supply
Firms to understand why industries globalize and what
are potential opportunities and threats occur through
globalization
INTERNATIONAL STRATEGY
Globalization of Markets - A market is
globalized when significant price differentials
for a product cannot persist across
geographic regions
Drivers for Globalization of Markets
• The evolution of global tastes and
preferences that converge or become the
same around the world
• Reduction in formal and informal trade
barriers
INTERNATIONAL STRATEGY

• Lower transportation costs that drive prices


down and open new markets in previously
hard-to-reach locations
• A reduction in costs to search for information,
due to an effective worldwide communications
network, which forces sellers to set uniform
prices
Firms to understand why markets globalize and how
this globalization impacts the firm
INTERNATIONAL STRATEGY

OES Triangle
INTERNATIONAL STRATEGY
OES Triangle
• Interdependence of the components:
Organization (O), Environment (E), and
Strategy (S), and the importance of their
alignment with one another
• The key to its success lies in its ability
to assemble the right balance, or fit, of
the OES triangle
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Organization - Appropriate Structure and
Culture that will facilitate a firm's strategy in
an environment
Structure defines
• Firm Procedures
• Role Configuration
• Determines Governance
• Control Mechanisms
• Centralisation / Decentralisation
Provides the framework for authority and
decision-making processes.
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Organization -
Culture defines a firm's values, beliefs,
and norms that shape and control the
way the firm conducts business
Culture guides how employees interact
with one another and with customers
INTERNATIONAL STRATEGY

The environment includes market and


nonmarket factors that can affect a
company's ability to generate a profit
• Identifying the buyers, the suppliers, the
competitors, and the power dynamics
among them
• Identifying substitutes, complements, and
barriers to entry that can affect a firm
INTERNATIONAL STRATEGY

Strategy - The final component of the OES


triangle
• Identifying the firm's competitive
advantage, goals for leveraging the
competitive advantage, the scope of the
firm, and the logic that articulates why the
firm will succeed, given the other three
elements.
INTERNATIONAL STRATEGY

Strategy –
• The firm's long-term goals
• Ambitions for the firm that guide the firm in its
decisions about which actions to pursue
• Goals for for-profit firms usually include some
measure of economic success
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Strategy –
• The scope of the firm's business activities
• The products and services the firm will provide,
the technologies the firm will use, and the
markets (demographic or geographic) the firm
will target.
• Managers also decide what the firm will
produce in-house and what it will outsource.
The scope of a firm answers the question,
What are the activities in which this firm will
engage?
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Strategy –
• The firm's competitive advantage
• The underlying logic that supports decisions about
each of the three elements
• Articulation of how the goals, scope, and
competitive advantage will come together for the
firm's success.
• This step in developing a strategy explicitly
answers the questions, Why will the chosen
strategy work, and Why will this company succeed
with the chosen strategy?
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What Is Competitive Advantage?
• A firm doesn't need to capture all buyers in an
industry to gain competitive advantage
• A firm has competitive advantage if enough
buyers in the firm's scope deem it to have an
advantage and buy from that firm at a rate that
allows the firm to be profitable
• Competitive advantage is the reason customers
buy a particular firm's products, instead of
competitors' products, at a price that is profitable
for the firm
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What Is Competitive Advantage?
• If a firm has competitive advantage, it means that
customers value its goods or services more than
those of the firm's competitors or that the firm can
produce goods or services at lower costs than its
competitors
• Competitive advantage is assessed by potential
customers and is always measured relative to
competitors
• Customers validate a firm's competitive
advantage when they buy from that firm instead
of another firm. A particular firm's advantage is
relative to competition because the competition is
also attempting to capture potential industry
earnings
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How Do Consumers Assess Competitive
Advantage?
• To create and capture maximum value in the
industry, firms produce their products or services at
the lowest possible cost for a given level of
customer-perceived quality
• Approaches for attaining competitive advantage
have two major dimensions: quality and cost. If a
company can achieve a quality-cost combination
that allows it to be profitable, it has competitive
advantage
• When a firm expands beyond its domestic borders,
it is crucial that it is aligned its quality-cost
approach with its new environment and changing
organization
INTERNATIONAL STRATEGY
Sources of Competitive Advantage
• Competitive advantages based on some
combination of quality and cost are
achieved by both a firm's position and its
capabilities. Most firms have both types
of advantage and each type reinforces
the other
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Sources of Competitive Advantage
Position
Positional advantage refers to how a
company's current situation gives it
advantage
• First mover or an innovator
• An attractive industry structure due to
governmental protection and support,
geographical incumbency or industry
standards that work in a firm's favour
INTERNATIONAL STRATEGY
Sources of Competitive Advantage
• Industry heterogeneity may confer
advantages by allowing a firm to occupy
a position relative to competitors.
Permits to leverage its brand name,
product offerings, industry status and /
or operational effectiveness or scale
• Position through its network, including
its customer relationships and
distribution channels
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Sources of Competitive Advantage
Capability
• Capability advantage refers to what a
company does well
• Distinctive competencies include
- A firm's knowledge and skills
- Its managerial systems
- Physical systems
- Its values
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Sustainability of Competitive Advantage
• It is not enough for a firm to just gain a
competitive advantage in a new
environment
• It must strive to sustain that competitive
advantage
• The firm may do this by building
positions and capabilities that are
difficult for competitors to imitate
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Sustainability of Competitive Advantage
• A position will be more sustainable the
more it forces potential imitators to be
inconsistent with their own current image
or reputation, activities or coordination
and control mechanisms
• These inconsistencies will deter the
potential imitator from matching
particular levels of quality and cost
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Sustainability of Competitive Advantage
• Capability-based advantage will be more
sustainable to the degree that it is difficult for
a potential imitator to understand the
capability
• The more complex, tacit, and ambiguous the
capabilities are, the more difficult they are to
imitate. Capabilities are particularly difficult
to imitate if they are highly interrelated
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Country Competitiveness
Factor Conditions
• Human Resources
• Physical Resources
• Knowledge Resources
• Capital Resources
• Infrastructure Resources
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International Marketing Intelligence
• Adequate, reliable information is must for decision
making
• Decisions pertaining to Market Selection
Prospects
Competition
Entry and Operating
4 Ps of Marketing Mix

• Information related to General Conditions


Foreign Exchange
Prescriptive Information
INTERNATIONAL STRATEGY
International Marketing Intelligence
• Source of Information
India ITPO
STC
CC
FICCI
Boards
EXIM Bank, Commercial Banks,
ECGC
IIFT
Competitors
Overseas International Trade center, Geneva
Indian Embassies
WTC
Publications
INTERNATIONAL STRATEGY
• International Marketing Intelligence
Marketing Research
4 Ps
Existing & Emerging Marketing Opportunities
Relative SWOT Analysis
Expensive
Reliability?
Paucity of data in Developing Countries
Scope of Research
Product Pricing Distribution Promotion Consumer
Trend
INTERNATIONAL STRATEGY
• International Marketing Intelligence
Types of Research
Exploratory Research
Study of Secondary Data
Personal Interviews
Analysis of selected cases
Conclusive Research
Descriptive Research
Case Study
Statistical Study
Experimental Research
INTERNATIONAL STRATEGY
• International Marketing Intelligence
Methods of Data Collection
Observational Research
Survey Research
Personal Interviews
Telephone Interviewing
Mail Questionnaire
INTERNATIONAL STRATEGY
• International Marketing Intelligence
Research Agencies
Benefit from professional expertise
Unbiased
Knowledge and Familiarity
Cost Effective
Problems
Cultural Differences
Expensive
Suitability of Research Methodology

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