International Strategy and Management

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

Textbooks
 Global Business Today
 Charles W.L. Hill; Irwin

Mastering Global Markets Czinkota, Ronkainen, and Donath; Thompson Total Global Strategy George S. Yip; Prentice Hall

Pedagogy
 Lecture / Discussion
 Slides on web (before, complete)

 Exercises
 Hill GlobalEDGE

 Case studies  Simulation: Country Manager

 Interpretive Software

Globalization

Globalization
 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

Average Tariff Rates (Manufactured Products as % of Value)

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

Growth World Trade & Output

2500 2000 1500 1000 500 0 1950 1960 1970 1980 1990 2000 Trade Output (GDP)

National Composition of MNCs

8000

1973
48.5% 3.5 18.8 7.3 8.1

1990
31.5% 12 6.8 10.4 .9

1997

2000
Latin America W.Europe

U.S.A. 6000 Japan

4000 2000 1000 France 3000 U.K. 5000

7000

32.4% Rest of World 26% 15.7 6.6 9.8 12.7 17

8 Asia Pacific
North America

13

Germany

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.

Globalization
 Driving to work: The typical American experience
      Your car Your gasoline Your investments Your entertainment Your morning snack Your news

Globalization
 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 produce 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 corruption. Exercise moral imagination.

Global Ethics
Incentives to be ethical Avoid legal penalties, bad PR, employee satisfaction Ethics and corruption Foreign Corrupt Practices Act 1977 Example 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 justin-time production, and use the balanced scorecard to keep score. You figure to double your business in the first year. But right now, youre thinking it might have been a better idea to take that consulting offer instead. The first million-dollar shipment of your companys 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 its ruined. Unfortunately, you cant 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. Youre 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 dont have. What should you do?!? Fortunately, you remember the $1000 travelers check in your back pocket thats 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 customs.

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

Culture
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 taken in particular situations together, constitute a design for living.
Folkways:  Routine conventions of everyday life Values  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. Freedom 

What are American Values?

Achievement and success Individualism Freedom Progress Democracy Equality

Views of Another Culture

How the Americans see the French: -arrogant
-flamboyant -hierarchical -emotional
French culture

How the French see the Americans: -naive

-aggressive -unprincipled -workaholic
American culture

Norms and Values

Hofstedes Work-Related Values

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

China

But
Dont assume everyone in a country has the same norms and values

Determinants of Culture
Religion Language Culture: Norms and Value Systems

Education Political Philosophy Economic Philosophy Social Structure

Religion Distribution
20% 43%

Christian
(1.2 Billion)

Islam
(1 Billion)

Hindu
18%
(500 Million)

Buddhist
(250 Million)

4% 5%

10%

Confucian
(150 Million)

Other/ Nonreligious

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

Language
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)

Education
Formal education supplements family role in teaching values and norms For intl business, it is a determinant of national competitive advantage
(post-war Japan)

Medium to learn language, conceptual, and math skills

Value of personal achievement and competition

Focus on facts of social and political nature of society

Obligations of citizenship

Political Philosophy (System)

Democracy and Totalitarianism
Democracy
Government by the people, exercised either directly or through elected representatives.

Totalitarianism
Government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited.

Economic Philosophy (System)

   Market Economy
  All productive activities are privately owned Goods and services produced, their quantity, and prices are determined by the government Parts of the economy are left to private ownership and free market mechanisms while other sectors are state-owned and have government planning The state plays a significant role through its industrial policy and setting national goals

Command Economy Mixed Economy



State-Directed Economy


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

Americanization/Westernization Global brands McDonalds in China Levis in India Sony Walkman in South Africa MTV everywhere Countertrends Quebec, Russia, Islamic fundamentalism

Cultural Change

Culture - Case
Euro Disney: The First 100 Days HBS 9-693013 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 Changes
Luehrman HBS 9-288-018

Example: Losses at JAL Airlines (Hill) Case: Japans Automakers Face Endaka HBS 9796-030
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 markets 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
25,000

20,000

15,000

10,000

5,000

Greenwich Mean Time

0 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 In Tokyo In Tokyoopening

Asia closing

Americas London open closing

Afternoon in America

6 pm In NY

Tokyo 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 Participants

  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 tiers
     Bank and non bank foreign exchange dealers Individuals and firms conducting commercial or investment transactions 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 markets 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 transactions  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 countrys 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 governments 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

 Transactions within this market can be executed on a spot, forward, or swap basis
   A spot transaction requires almost immediate delivery of foreign exchange 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 Transactions

   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 counterpart 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)
800 700 600 500 400 300 200 100 0 1989 1992 1995 1998 2001 Spot Forwards Swaps

Source: Bank for International Settlements, Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2001, October 2001, www.bis.org. Next survey planned for April
2004.

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)

700 600 500 400 300 200 100 0 1989

United States United Kingdom Japan Singapore Germany

1992

1995

1998

2001

Source: Bank for International Settlements, Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2001, October 2001, www.bis.org. 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 80 70 60 50 40 30 20 10 0
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, www.bis.org. Next survey planned for April 2004. US dollar euro Deutshemark French franc EMS currencies Japanese yen Pound sterling Swiss franc

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 $0.6250/Sfr, read as 0.625 dollars per Swiss franc American quote

The dollar price of a unit of foreign currency

 

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 currency
  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
Outright spot: Plus points (3 months) Outright forward: 118.27 -1.43 116.84

Ask
118.37 -1.40 116.97

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

FC

Spot - Foward 360 ! x x 100 Foward days

FOREX Rates & Quotes

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

Forward - Spot 360 f ! x x 100 Spot days

H

FOREX Rates & Quotes

 Forward Quotations in Percentage Terms
 Example: Indirect quote

Example: Direct quote

105.65 - 105.04 360 f ! x x 100 !  2.32% p.a. 105.04 90

0.009520183 - 0.009465215 360 f ! x x 100 !  2.32% p.a. 0.009465215 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 Switzerland

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 Mexican peso

121.13/$ 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/$ Japanes yen/US dollar ! ! 13.1806 / PS Mexican pesos/US dollar PS 9.190 / $

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 Barclays Bank Dresdner Bank $0.9045/ $1.4443/ 1.6200/

FOREX Rates & Quotes

 Intermarket Arbitrage
 The cross rate between Citibank and Barclays is

$1.4443/ ! 1.5968/ $0.9045/

 This cross rate is not the same as Dresdners rate quote of 1.5800/, so an opportunity exists for risk-less profit

FOREX Rates & Quotes

Citibank
End with $1,014,533 (6) Receive $1,014,533 (1) Start with $1,000,000 Sell $1,000,000 to Barclays Bank at $1.4443/

Dresdner Bank
(5) Sell 1,121,651 to Citibank at $0.9045/ Receive 1,121,651 (2) (3)

Barclays Bank
Receive 692,377 Sell 692,377 to Dresdner Bank at 1.6200/

(4)

Managing Global Expansion

Managing Global Expansion

 Managing Global Expansion: A Conceptual Framework
 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
Joint Ventures Licensing

Exporting Franchising

Wholly Owned Subsidiaries

Sony TVs, Matsushita VCRs

Exporting
 Ship to another country for sale or exchange  Advantages:
 Avoid cost of establishing manufacturing operations  Help achieve experience curve and location Disadvantages: economies May compete with low-cost location manufacturers Possible high transportation costs Tariff barriers Possible lack of control over marketing reps

Example: Heineken Beer (Hill)

Improving Export Performance

Information from government sources Export Management Companies Export strategies

Bundesregierung.de Miti.go.jp Exim.gov Ita.doc.gov

Export specialists who act as the export management department or international department for client firms

Top management commitment Start small Enter to learn, add to grow Build relationships 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 ABDs 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 teams 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.

Licensing

Euro-Disney Japan

 Licensor grants rights to intangible property to another entity for a specified period of time in return  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 property

 Disadvantages:
 Lack of control  Cross-border licensing may be difficult

Franchising
 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 partners knowledge  Shared costs/risks with partner  Reduced political risk

 Disadvantages:
 Risk giving control of technology to partner  May not realize experience curve or location economies  Shared ownership can lead to conflict

Strategic Alliances
 Collaborate with your Competitors & Win
 Hamel, Doz & Prahalad HBR Reprint 89104  Learning

Establishing a Wholly Owned Subsidiary

 Pro:
    Acquisition

 Pro:
 

Greenfield

Quick to execute Preempt competitors Possibly less risky Often produce disappointing results
    Overpay for firm Too optimistic about value creation (hubris) Culture clash Problems with proposed synergies

 Con:
  

Can build subsidiary it wants Easy to establish operating routines Slow to establish Risky Preemption by aggressive competitors

 Con:

Selecting an Entry Mode

Basis for Competition

Technological Know-How

Entry Mode Wholly owned subsidiary unless 1. Venture is structured to reduce risk of loss of technology 2. Technology advantage transitory Then licensing or joint venture OK

Management Know-How Pressure for Cost Reduction

Franchising, subsidiaries (wholly owned or joint venture) Combination of exporting and wholly owned subsidiary

Which Foreign Markets?

Market potential Market size (e.g., China vs. Taiwan) Demand Costs: Customer acquisition, infrastructure Distance:
Cultural, administrative, geographic, economic
Wal-Mart in Mexico) (Comparisons

Learning potential Sophisticated/demanding customers? Pace of technology?

Wal-Mart de Mexico
Sams 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 Costs early entrant  Changes in government policy
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 issues

 Xerox and Fuji Xerox HBS 9-391-156

 Importance of structural flexibility, autonomy/integration tradeoff, drivers of collaboration, multi-market contact

International Manufacturing Strategy

Where to manufacture?
 How to Integrate Work and Deepen Expertise
 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 needs

Location Strategy
Favored Manufactured Strategy Country Factors Differences in political economy Differences in culture Differences in factor costs Trade barriers Technological Factors Fixed costs Minimum efficient scale High High Low Low Not Available Concentrated Substantial Substantial Substantial Few Decentralized Few Few Few Many

Flexible manufacturing technology Available Product Factors Value-to-weight ratio Serves universal needs High Yes

Low No

Manufacturing Location Case

The Acer Groups 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

International Marketing Strategy (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 market  Challenges faced by a late entrant  Impact of cultural and religious considerations on market demand and marketing strategy  Marketing program calculations

International Human Resource Management

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-Ps policy to your companys policy Continuous improvement Pre-departure concerns, spouse assistance Surveys to review and revise Effective but costly Focus on selection