Global Business Strategies

MGT448

MGT/448 2008

Global Business Strategies

Weekly Themes
Contemporary Global Business Environment Global Business Strategy Formulation Strategic Implementation: Global Business Operations Strategy Implementation: Finance & Marketing in Global Business Changing Environment of Global Business
MGT/448 2008

Global Business Strategies

Week Two:
Global Business Strategy Formulation

MGT/448 2008

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Modes of Entry (1)
Export/Import
Indirect export a manufacturer sells its products to consumers in another country, working through independent international intermediaries. If the manufacturer has shares in one or several intermediaries, then this can be regarded as FDI. Direct export a firm sells its products to consumers in another country by fulfilling its own sales contracts in the host country. This is usually classified as trade not FDI.
MGT/448 2008

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Modes of Entry (2)
Licensing
A firm licenses the right to produce its product, the use of its production process, or the use of its brand name or trademark to a foreign firm.

Franchising
A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business.

MGT/448 2008

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Modes of Entry (3)
Management contracts
The export company usually provides the management team and technology, while the host country firm provides the capital (money, facilities, labor, etc.).

Contract Manufacturing
A foreign producer makes products in the host country for the host country market.

MGT/448 2008

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Modes of Entry (4)
Joint ventures (mergers and acquisitions)
A cooperative undertaking between two or more firms in which they share ownership and control.

Strategic alliances (mergers and acquisitions)

A cooperative agreement between actual or potential competitors that can run the range from formal joint ventures to short term contractual agreements.

MGT/448 2008

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Modes of Entry (5)
Turnkey operations
A cooperative agreement in which a firm agrees to set up an operating plant for a foreign client and hand over the key when the plant is fully operational.

Wholly owned subsidiaries (green field FDI)

The exporting firm enters the foreign market by developing foreign-based assembly, manufacturing, or distribution facilities. This is a narrow definition of FDI.
MGT/448 2008

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Decision Framework
How high are transportation costs and tariffs? High Is know-how amenable to licensing? Yes Is tight control over foreign operation required? No Can know-how be protected by licensing contract? Yes Then license
MGT/448 2008

Low

Export

No

FDI

Yes

FDI

No

FDI

Global Business Strategy Formulation

Theory of Foreign Direct Investment (FDI) Forms of FDI
Horizontal direct investment
FDI in the same industry abroad as company operates at home.

Vertical direct investment

Backward - investments into industry that provides inputs into a firms domestic production (typically extractive industries/production) Forward - investment in an industry that utilizes the outputs from a firms domestic production (typically sales and distribution)
MGT/448 2008

Global Business Strategy Formulation

Business Risk Analysis (1)
Country & business risk analysis
STP (Segmentation, Targeting, Positioning) factors analysis related to country SWOTT analysis (Strengths, Weaknesses, Opportunities, Threats, and Trends)

Initial screening:
Basic need and/or potential for foreign trade or investment Possible modes of entry Possible forms of FDI if FDI is chosen
MGT/448 2008

Global Business Strategy Formulation

Business Risk Analysis (2)
Second screening: economic & financial forces
Economic indicators (GDP, growth rate, inflation, interest rate, unemployment rate, etc.) Exchange rate controls Currency convertibility Capital mobility Trade barriers Balance of payments Budget deficits

MGT/448 2008

Global Business Strategy Formulation

Business Risk Analysis (3)
Third screening: political & legal forces
Entry barriers Profit remittance barriers Business law Political stability Other possible barriers

MGT/448 2008

Global Business Strategy Formulation

Business Risk Analysis (4)
Fourth screening: socio-cultural forces
Demographics Cultural/Communication Religious Educational Health/Labor

Fifth screening: competitive forces

Number, size, and financial strength Market share
MGT/448 2008

Global Business Strategy Formulation

Global Strategic Planning Process
Analyze external global environment Define corporate vision/mission Set corporate objectives Quantify objectives Formulate corporate strategies Implement/execute strategic plan Control and evaluation Devise contingency plan
MGT/448 2008

Global Business Strategy Formulation

Mission Statements
Define our business & who we are Identification of stakeholders & their claims
Labor Customers Suppliers Stockholders/Shareholders Management Community

Needs to go global to address the above targets and interests

MGT/448 2008

Global Business Strategy Formulation

Stages of Economic Development
Traditional Pre-Conditions for growth Take-Off Drive to Maturity Age of Mass Consumption

MGT/448 2008