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Introduction to an International Strategic Planning
Session 1
Literature resources
Presentations / lecture notes Assigned papers International Management, Helen Deresky,
2006 (2 copies available in the library), Chapters 6 and 7
2
Grading Criteria
Activity % of the final mark
Class attendance 10 %
Participation during study case analysis
15%
Presentation 30%
Final Exam 45%
3
Strategic management process
Strategic planning process
Implementation process
4
Reasons for going international
Reactive reasons Proactive reasons
Globalization of competitors Pre-empted of
resources / markets Increased domestic
competitiveness Trade barriers Regulations and
restrictions Customer demands
Economies of scale Growth opportunities
New life cycles Resource access and
cost savings Raw materials, labour,
transportation Incentives
Decreased risk Increased profits
5
Strategic planning for international companies Strategic planning
A company business strategy is a set of fundamental choices which define its long-term objectives, value proposition to the market, how it intends to build and sustain a competitive business
system
Strategy components: Ambition – choice of long-term objectives Positioning – choice of customer segments and of value
proposition to customers Investment – choice of investments in order to create business
system able to deliver value to customers competitively Organization – Choice of people, structure, processes and
systems
6
Strategic ambition
Global player A company that aspires to establish a sustainable competitive position in the key markets of the world and to build an integrated system of designs spread over those key markets
Regional player
A company that captures a strong competitive advantage in one of the key regions of the world and is a marginal or relatively weak competitor in other parts
Regional dominant global player
A company whose role is more than a regional player but it is not yet selling across the key markets of the world
Global exporter
A company whose role is to sell across the key markets of the world products manufactured or services operated in its home country and who builds foreign operations only to support the export drive
Global operator
A company that produces a large fraction of its product components in factories located outside its base market and which concentrates its sales in its domestic market
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Value propositionValue attributes
Elements of the product or services that customers value when making their purchasing decision (product design, functionality, performance, quality, customization, price, related service, brand, availability, etc. = customer’s value curve).Porter distinguishes 2 ‘generic’ strategies:• Differentiation – based on value enhancing attributes • Cost leadership – based on price for standardized products/services
Customer segments
Groups of customers that have similar value curves. Porter distinguishes 2 general segmentation strategies: • Focused – company concentrates its segmentation on one or two customer groups • Broad – company attempts to embrace many or all customer segments
Standard / vs. adaptive
Choice between a standardized versus adaptive value proposition across countries.• Standard – similar or standardized value set of attributes to the same type of customer segments• Adaptive – differentiated value attributes and segments based on a country / region characteristics / value curves
8
Competitive advantages
= distinctive competencies (capabilities) that are difficult to replicate or imitate and are non-tradable
Increased customer
value
Lower cost base
9
Distinctive competencies leading to competitive advantage
10
Sources of competitive advantageAccess to unique raw materials and locationAccess to licence from regulatory authoritiesPrivileged access to informationPrivileged (or first choice) access to skilled labourPrivileged access to low-cost labour forcePrivileged access to suppliersPrivileged access to cheaper capital
Unique low-cost position owing to accumulated volumeUnique low-cost/quality position owing to proprietary process technologyUnique low-cost position owing to installed baseControl of distribution network Well established brand/reputationPatentsProprietary scientific/technological know –howSuperior ability to bundle know-howSuperior ability in management of critical processesSuperiority in time managementFaster product developmentBetter management of information
Resources-based
Assets-based
Competencies-based
11
Stages in the International evolution of a companyStage Means of presence in
the marketFeatures
1 Indirect / Ad hoc exporting
Indirect exporting or the servicing of occasional, unsolicited export orders. Weak commitment to foreign markets
2 Active exporting and/or licensing
Efforts to penetrate foreign markets through agent/distributor or branch/subsidiary exporting. International business viewed as separate and distinct from domestic business
3 Active exporting, licensing, and equity investment in foreign manufacture
Efforts to penetrate foreign markets involve manufacture in some countries, combined with exporting and/or licensing in other countries. International business is not integrated across countries and regions. Nor is international business strategy integrated with domestic business strategy.
4 Full-scale multinational marketing and production
Multiple national markets are served from multiple national sources. International business strategy thoroughly integrated with domestic business strategy to form corporate business strategy. Home country is treated just as one of many national markets.
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Level on internalization of a company
13
LOW MEDIUM HIGH
Motivation of internalization
Passive response
Proactive action
Degree of similarity, foreign vs. domestic markets
Similar Somewhat different
Very different
Number of countries where company has operations
One Several Many
Mode of operations Import/Export
Licensing Foreign direct investment
Internal vs. external handling
Foreign operations through intermediaries
Ownership of foreign operations
Entry strategy alternatives
14
Entry strategy alternatives
15
Factors influencing entry mode decision
Target country market factors
Target country
environmen-tal factors
Target country
production factors
Home country factors
Foreign Market entry mode
decision
Company product factors
Company resource / commitm
ent factors
Internal factors
External factors
16
External factors:Target country market factors The present and projected size of the target country
market Small markets entry modes that have low breakeven sales
volumes (indirect and agent/distributor exporting, licensing and some contractual arrangements).
Markets with high sales potentials high breakeven sales volumes (branch/subsidiary exporting, equity investment in local production)
Competitive structure of the target country market Atomistic (many non-dominant competitors) export Oligopolistic (few dominant competitors), monopolistic (a single
firm) investment entry modes Marketing infrastructure of the target country
Good local agents / distributors tied to other companies branch/subsidiary
17
External factors:Target country production factors Quality, quantity and costs of raw materials,
labour, energy, and other reproductive agents Quality and costs of the economic
infrastructure (transportation, communications, port facilities, etc.)
Low production costs local production against exporting
18
External factors:Target country environmental factors Economy
Market economy vs. centrally planned economy Size of the economy (GNP) / absolute level of
performance (GNP per capita) / relative importance of its economic sectors (% of GNP)
Dynamics of economy (rate of investment, growth rate of GNP, and personal income, changes in employment, etc)
External economic relations (direction, composition, value of imports and exports, the balance of payments, the debt service burden, exchange rate behaviour, etc.)
19
External factors:Target country environmental factors (contd.)
Government policies and regulations Restrictive import policies discourage export Incentives encourage investment entry mode
Geographical distance Great distance = high transportation costs
discouraged export Cultural distance
Substantial cultural distance favours non-equity entry modes
Influences entry timing (sequence) in the choice of target countries
20
External factors:Home country factors Size of the domestic market
Big domestic market allows a company to grow to a large size before it turns to foreign markets large companies are more inclined to use equity entry modes
Small domestic markets companies are more inclined to export in order to reach optimum size with economies of scale
Production costs in home market High costs licensing, contract manufacture,
investment Policy of home government toward exporting
and foreign investment by domestic firms21
Internal factors:Product factors Level of differentiation
Highly differentiated products can absorb high unit transportation costs and high import duties export
Weakly differentiated products must compete on a price basis local production (contract manufacturing / equity investment) in order to reduce costs
Pre- and post-purchase services Service-intensive products (industrial products)
branch/subsidiary exporting / local production Service vs. physical product Technology intensiveness
Licensing arrangements Level of product adaptation
22
Internal factors:Resource / Commitment factors Abundant vs. limited resources (company
size) Company with limited resources is constrained to
use entry modes that call for only a small resource commitment
Commitment High-commitment companies, regardless of their
size, are more likely to choose equity entry modes
23
Evolution of a manufacturer’s decision on entry mode
Risk
Con
trol
Time
Indirect export
Agent / distributor export
Joint venture
Sole venture
Branch export / Subsidiary
Licensing
24
Continue to exploit home country only
Logical Flow Model of Entry decision Process
Do we have products that can probably be marketed
abroad?
Should we investigate foreign markets?
Does preliminary screening indicate potential target
country markets?
Does secondary data analysis indicate a country with sales
potential?
Do primary (field) data support secondary data?
Is our entry mode the most appropriate mode, given external factors and our
objectives?
Should we investigate
other markets?
Is our performance satisfactory?
Should we enter the foreign
market now?
Is our marketing plan the most appropriate one, given
our resources and objectives?
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
Redesign entry mode
No
Redesign marketing
plan
Yes No
Delay entry
Withdraw
Redesign strategy
Stay with single market
Yes
Yes
Yes
No
No
No
No
Yes
25
Elements of an International market entry strategy
Assessing Products and
foreign markets: Choosing the
target Product / Market
Setting Objectives and Goals
Choosing the entry mode:
Export, Contractual
Arrangements, or Investment
Designing the Marketing plan: Price, Promotion,
Distribution, etc.
Target
market
Control system: Monitoring Operations/
Revising Entry Strategy
26