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MNEs A good definition: An enterprise having a substantial direct investment in foreign countries engaged in active management of such offshore assets and regarding those operations strategically and organizationally as integral part of it. - PowerPoint PPT Presentation
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MNEsMNEs
A good definition:A good definition:
An enterprise having a substantial An enterprise having a substantial direct investment in foreign countries direct investment in foreign countries engaged in active management of engaged in active management of such offshore assets such offshore assets and and regarding regarding those operations strategically and those operations strategically and organizationally as integral part of it.organizationally as integral part of it.
Motivations for international operations: Motivations for international operations: Capitalize on all potential advantagesCapitalize on all potential advantages
Traditional:Traditional:Secure key supplies. Eg: ONGC in Secure key supplies. Eg: ONGC in
RussiaRussiaSeek markets abroad in pursuit of Seek markets abroad in pursuit of
economies of scale: Mahindra in USeconomies of scale: Mahindra in USSeek access to low cost factors of Seek access to low cost factors of
production. CEAT in Sri Lankaproduction. CEAT in Sri Lanka
These push factors can be related to the These push factors can be related to the product Life Cycle Theoryproduct Life Cycle Theory
Emerging motivations – Beyond overseas Emerging motivations – Beyond overseas sales and production operations:sales and production operations:
Set of forces I Set of forces I Increasing scale economiesIncreasing scale economies expanding R&D investmentsexpanding R&D investments shortening product life cyclesshortening product life cycles
IIII global scanning and learning global scanning and learning
capability (on raw materials, capability (on raw materials, markets, products, technologies)markets, products, technologies)
IIIIII Competitive positioning (eg. Cross-Competitive positioning (eg. Cross-
subsidisation of markets)subsidisation of markets)
Process of Internationalization:Process of Internationalization:
Countervailing strategic advantage of Countervailing strategic advantage of an MNE over a domestic company:an MNE over a domestic company:
Superior knowledge or skills as regards Superior knowledge or skills as regards technology, marketing, R&D, Scale technology, marketing, R&D, Scale economies oreconomies or
some other part of its value chain some other part of its value chain
Options for entry in markets abroadOptions for entry in markets abroadExportsExportsLicensingLicensingFranchisingFranchisingJoint ventureJoint ventureWholly owned subsidiaryWholly owned subsidiary
Uppsala Model of internationalization:Uppsala Model of internationalization:
Go through cycles of investment treating Go through cycles of investment treating market entry as a learning process:market entry as a learning process:
Step I : Step I : Initial commitment of Initial commitment of resources to the foreign resources to the foreign
market to know market to know about about customers, customers, competitors competitors and and regulatory conditions.regulatory conditions.
II : II : On this basis, evaluate On this basis, evaluate
current activities and current activities and opportunities for opportunities for
additional additional investment. investment.
III:III: Make a subsequent Make a subsequent resource resource commitment, eg. buy out local commitment, eg. buy out local
distributor or invest in a distributor or invest in a manufacturing plant.manufacturing plant.
IV: IV: With additional knowledge and With additional knowledge and several cycles of several cycles of
investment, investment, develop capability develop capability and market and market knowledge to knowledge to compete in the compete in the foreign foreign market.market.
STRATEGIC MANAGEMENTSTRATEGIC MANAGEMENT
A critical part: A critical part: Deciding how a company Deciding how a company should should compete abroad.compete abroad.
All companies make money through value All companies make money through value creation.creation.
3 general strategies for value creation:3 general strategies for value creation:• Differentiating products or services from those of Differentiating products or services from those of
competitors (eg. Mercedes Benz.)competitors (eg. Mercedes Benz.)• Cost leadership (eg. ACER of Taiwan)Cost leadership (eg. ACER of Taiwan)• Niche strategy – Focusing a specific line of Niche strategy – Focusing a specific line of
products/services relative to competitors who products/services relative to competitors who operate more broadly (eg. PORSCHE of Germany operate more broadly (eg. PORSCHE of Germany for Upscale sports cars. Slogan “There is no for Upscale sports cars. Slogan “There is no substitute”)substitute”)
Regardless of this basic approach, companies areRegardless of this basic approach, companies are
A LINKED SET OF VALUE CHAINS.A LINKED SET OF VALUE CHAINS.
So, companies can add value bySo, companies can add value by• Changing any of their primary activities Changing any of their primary activities
(manufacturing, marketing)(manufacturing, marketing)• Changing any of their supporting activities (materials Changing any of their supporting activities (materials
procurement, HR)procurement, HR)
either alone or in combinationeither alone or in combination..
So a company’s international strategy is about choices onSo a company’s international strategy is about choices on
- How value chain activities are configured (eg. - How value chain activities are configured (eg.
Where do value chain activities happen? ) andWhere do value chain activities happen? ) and
Coordinated (eg. Are dispersed activities tightly Coordinated (eg. Are dispersed activities tightly
controlled from HQ? orcontrolled from HQ? or
Do they remain under local control?)Do they remain under local control?)
OFTEN COMPANIES CHANGE THESE ACTIVITIESOFTEN COMPANIES CHANGE THESE ACTIVITIESTO IMPROVE THEIR CORE COMPETENCIESTO IMPROVE THEIR CORE COMPETENCIES
(i.e: skills that are hard for competitors to imitate) (i.e: skills that are hard for competitors to imitate)
CORE COMPETENCIES CAN BE LOCATED ANYWHERE IN THE CORE COMPETENCIES CAN BE LOCATED ANYWHERE IN THE FIRM’S VALUE CHAIN AND PROVIDE THE BASIS FOR FIRM’S VALUE CHAIN AND PROVIDE THE BASIS FOR INTERNATIONAL COMPETITIVENESS.INTERNATIONAL COMPETITIVENESS.
Examples:Examples: Logistical executionLogistical execution -- Wal-MartWal-Mart Product innovationProduct innovation -- 3M3M Manufacturing QualityManufacturing Quality -- ToyotaToyota
Location Economies: cost effective availability of benefits Location Economies: cost effective availability of benefits exclusive to locations.exclusive to locations.
Scattering certain value chain activities to locations that Scattering certain value chain activities to locations that offer such benefits can provide a source of offer such benefits can provide a source of competitiveness.competitiveness.
But sustainable competitive advantage comes from:But sustainable competitive advantage comes from:ability to constantly change and adapt which allows ability to constantly change and adapt which allows many individual firms to outperform their many individual firms to outperform their
competitors.competitors.
Success factors for cos in specific industries:Success factors for cos in specific industries:Processed FoodsProcessed Foods
• TasteTaste• Sales promotion Sales promotion • PricePrice• Distr. ChannelsDistr. Channels• Brand identificationBrand identification
PharmaceuticalsPharmaceuticals• Product efficiencyProduct efficiency• Product innovationProduct innovation• Patents held / filedPatents held / filed• Co. imageCo. image
AutosAutos• StylingStyling• ServiceService• QualityQuality• PricePrice• Fuel efficiencyFuel efficiency• Distr. systemDistr. system
Strategic Approaches used by MNEs:Strategic Approaches used by MNEs:(International, multidomestic global and (International, multidomestic global and
transactional)transactional)
Diverse MNEs are networks of relationships Diverse MNEs are networks of relationships among many dispersed organizations, each among many dispersed organizations, each with somewhat different goals and with somewhat different goals and perspectives (eg: GE)perspectives (eg: GE)
Understanding strategy in this context Understanding strategy in this context involves figuring outinvolves figuring out
- the internal movements of information, - the internal movements of information,
people, resources and products people, resources and products
through the MNE’s entire web of linkages.through the MNE’s entire web of linkages.
Perspectives on MNE StrategyPerspectives on MNE Strategy
Evolution of strategic role of MNEs’ foreign Evolution of strategic role of MNEs’ foreign operations:operations:
4 stages/ strategic approaches/ mentalities:4 stages/ strategic approaches/ mentalities:
International :Overseas operations International :Overseas operations considered as appendages. considered as appendages.
Technology and other Technology and other knowledge transferred from knowledge transferred from parent company to overseas parent company to overseas operators. operators.
Multidomestic: Multiple, nationally responsiveMultidomestic: Multiple, nationally responsive
strategies by the company’s strategies by the company’s worldwide subsidiariesworldwide subsidiaries
GlobalGlobal : : Treats the world as its unit of Treats the world as its unit of analysis through global analysis through global products and manufacture on products and manufacture on global scale.global scale.
Transnational:Transnational: Combines local responsiveness Combines local responsiveness with global-scale competitive with global-scale competitive efficiency.efficiency.
(Localization Strategy)(Localization Strategy)
Note: An MNE might operate with any Note: An MNE might operate with any one of these strategic approaches, one of these strategic approaches, depending on the industry, the depending on the industry, the company’s strategic position and a company’s strategic position and a variety of other factors.variety of other factors.
More likely, most companies will bear More likely, most companies will bear some characteristics of each of these some characteristics of each of these approaches.approaches.
Exercise:Exercise:
Organisational set-up for the four Organisational set-up for the four strategic approaches.strategic approaches.
Process of developing international Process of developing international strategy – A template:strategy – A template:
Step 1 – The Mission StatementStep 1 – The Mission Statement
Step 2 – Conducting a SWOT (environmental Step 2 – Conducting a SWOT (environmental
scanning)scanning)
Step 3 – Evaluate alternatives, set strategic Step 3 – Evaluate alternatives, set strategic
goalsgoals
Step 4 – Developing implementation Step 4 – Developing implementation
tactics and planstactics and plans
Step 5 – Putting control and Step 5 – Putting control and
evaluation procedures in place.evaluation procedures in place.
A Model:A Model: DETERMINATION OF
A FIRM’S COMPETITIVE POSITION IN INTERNATIONAL BUSINESSHANS MUHLBACHER et al
CUSTOMER & MAJOR STAKEHOLDERS
MACRO-ENVIRONMENT
SUCCESS FACTORS
COMPETITOR ANALYSISCOMPETITIVE ENVIRONMENTASSESSMENT OF
• CORPORATE POLICY CORPORATE STRATEGY MANAGEMENT SYSTEMS OPERATIONS
INTERNAL ANALYSIS CORPORATE POLICY CORPORATE STRATEGY MANAGEMENT SYSTEMS OPERAITONS
DISTINCIVE COMPETENCIES• PROFILE OF STRENGTHS & WEAKNESSESS COMPARISON OF PROFILES OF STRENGTHS & WEKNESSES
COMPETITIVE ADVANTAGES
Advantages and disadvantages of different foreign Advantages and disadvantages of different foreign market entry options.market entry options.
Advantages Disadvantages
Exporting ·fairly inexpensive·easy foreign access·no ownership risks
·Missed location economies·logistical difficulties
Licensing ·Fairly inexpensive·Useful where trade barriers/ tariffs hinder exporting·Leverages location economies without ownership concerns
·Risky where IPR protection is weak·Control ceded to licensee may inhibit coordination·May help create new competitors
Franchising ·Low cost, low risk·Offers more control than licensing·Builds presence fast
·Control still an issue·Franchisee may not be motivated to adhere to franchisor’s standards
Management Contracts
·Very inexpensive·Low risk revenue
·No long term presence·May create competitors
Turnkey projects
Greenfield subsidiaries
·An option if direct investment is out·Lowers risk if long term instability exists
·Allows high control·Offers location economies·Can pick own site, workers, technology.
·No long-term presence·May create competitors·Vulnerable to political and legislative changes
·Very expensive to set up ·Time-consuming to set up·Requires considerable international expertise·Risky due to ownership
Acquired subsidiaries ·Allows high control·Rapid market entry·Offers location economies
·Risky due to ownership·Cultural differences may be formidable·May be buying problems
Joint ventures ·Less financial risk than subsidiaries·Leverages partner’s resources, know-how
·Risks giving some control on technology to partner·Still some ownership risk
Other types of International Strategic Other types of International Strategic Alliances than JVs.Alliances than JVs.
Production allianceProduction alliance - Motivation may include - Motivation may include desire to acquire complex manufacturing desire to acquire complex manufacturing expertise from each other or reducing costs of expertise from each other or reducing costs of production.production.
R&D allianceR&D alliance - to develop new products or - to develop new products or technologiestechnologies
Financial allianceFinancial alliance - partners reduce their financial - partners reduce their financial exposure in risky projects by sharing costsexposure in risky projects by sharing costs
Marketing allianceMarketing alliance - partners share services or - partners share services or expertise in marketing related areas in ways that expertise in marketing related areas in ways that generate additional profits for both.generate additional profits for both.
Why SAs?Why SAs?
Local partner’s knowledge of the Local partner’s knowledge of the
marketmarket Government regulationsGovernment regulations Sharing risksSharing risks Sharing technologySharing technology Economies of scaleEconomies of scale Low-cost raw materials or labourLow-cost raw materials or labour
Key considerations in the SA decision:Key considerations in the SA decision:
Could other participation better satisfy Could other participation better satisfy strategic objectives?strategic objectives?
Does the firm have management and Does the firm have management and capital resources to contribute to the SA?capital resources to contribute to the SA?
Can a partner really benefit the Can a partner really benefit the company’s objectives?company’s objectives?
What is the expected payoff of the What is the expected payoff of the venture?venture?
Pre-alliance process: Building an SAPre-alliance process: Building an SA
- Partner selection: Strategic and Partner selection: Strategic and organisational analysis.organisational analysis.
- Avoidance of wrong choices and Avoidance of wrong choices and unrealistic expectations.unrealistic expectations.
- Determination of scope of the Determination of scope of the alliance.alliance.
- Opt for simplicity and flexibility.Opt for simplicity and flexibility.
Managing an SAManaging an SAStructuring the interface.Structuring the interface.Managing knowledge flows.Managing knowledge flows.Adopt appropriate structure for Adopt appropriate structure for
governance.governance.
Perspectives on SAsPerspectives on SAs
- Viewed as second best option.Viewed as second best option.- Alliances need not be permanent.Alliances need not be permanent.- Flexibility is essential.Flexibility is essential.- An internal knowledge network is also a An internal knowledge network is also a
must for organisational learning.must for organisational learning.
Evolution of the strategic role of an MNE in Evolution of the strategic role of an MNE in terms of its overseas operations:terms of its overseas operations:
International (ethnocentric)International (ethnocentric)Multinational (polycentric)Multinational (polycentric)Global (geocentric)Global (geocentric)Transnational (dispersed but Transnational (dispersed but
specialized resources and activities specialized resources and activities integrated into an interdependent integrated into an interdependent worldwide network)worldwide network)
For readings: Characteristics and aspects of For readings: Characteristics and aspects of organizational architecture of organizational architecture of
these strategies.these strategies. Challenges and opportunities Challenges and opportunities
for each of these strategies.for each of these strategies.
Going global: first movers and Going global: first movers and late moverslate movers
Advantages of first movers:Advantages of first movers:Preempt rivals and capture demand by Preempt rivals and capture demand by
establishing a strong brand name.establishing a strong brand name.Capture scale economies ahead of later Capture scale economies ahead of later
entrantsentrantsBenefit from a lower cost structure which Benefit from a lower cost structure which
later entrants find difficult to match.later entrants find difficult to match.Create high switching costs making it Create high switching costs making it
difficult for later entrants to win business.difficult for later entrants to win business.
Disadvantages:Disadvantages: Pioneering costs can be heavy.Pioneering costs can be heavy.
Chances of survival better if a firm enters after Chances of survival better if a firm enters after others have already created potential.others have already created potential.
Regulations can change to the benefit of later Regulations can change to the benefit of later entrants.entrants.
Factors that may prevent companies Factors that may prevent companies from venturing abroad:from venturing abroad:
““Liabilities of Origin” – Christopher Liabilities of Origin” – Christopher Bartlett & Samanthra GhoshalBartlett & Samanthra Ghoshal
Feeling trapped “in prison of local Feeling trapped “in prison of local standards” and of strong domestic standards” and of strong domestic demand for productsdemand for products
Being unaware of the company’s global Being unaware of the company’s global potentialpotential
Limited exposure to global competition, Limited exposure to global competition, leaving companies overconfident or blind leaving companies overconfident or blind to potential dangersto potential dangers
But successful emerging MNEs have But successful emerging MNEs have overcome these constraints through:overcome these constraints through:
—Push from home – eg. SAMSUNG from Push from home – eg. SAMSUNG from South Korea and Thermax from IndiaSouth Korea and Thermax from India
—Pull from abroad – eg. Ranbaxy of IndiaPull from abroad – eg. Ranbaxy of India
Strategies for Late Movers:Strategies for Late Movers:
(Bartlett & Ghoshal)(Bartlett & Ghoshal)
Benchmark and sidestepBenchmark and sidestep
eg. Jollibee of Philippines against McDonaldeg. Jollibee of Philippines against McDonaldConfront and ChallengeConfront and Challenge
eg. BRL Hardy against established wine eg. BRL Hardy against established wine exporters in Europeexporters in Europe
Learning how to learnLearning how to learn• Protect the pastProtect the past• Build the futureBuild the future
Exercise:Exercise:
How MNEs can manage conflicting How MNEs can manage conflicting demands ofdemands of
global integrationglobal integration local responsivenesslocal responsiveness world wide learningworld wide learning
Focus on MNE strategy and Organization
Main preoccupations :
Internal consistency and cohesion of the organizational set-up
Compatibility of organizational features with the strategy of the company or the fit between strategy and organization
Fit between company strategy and organization on the one hand and the competitive conditions in the market
These make demands on;
Structure of the company in its operational aspects :
− Decision-making− Division into subunits− Coordination / integration
Control systems and incentives Processes Organizational culture Capacity to change, innovate and
learn
Structuring International Business Operations
Organizational structure typically changes:
As firms expand their international operations or modify their strategic approach.
A common sequence:An Export Department
International Division Structure with either
Geography or
Product Line as the basis for sub-division
Global Area Structure with countries or regions as basis
Or
Global Product Structure where a company organizes around a diversified set of products or businesses
Global Matrix Structure
Where geographic and product division structures overlap and decision making is shared between product and geographic managers.
Thinking beyond the Matrix structure.
Organizational structure typically Organizational structure typically changes:changes:
When firms expand their international When firms expand their international operations operations oror
They modify their strategic approach.They modify their strategic approach.
I A common first step:I A common first step:
An export manager with some staffAn export manager with some staff
OrOr
An export departmentAn export department
Functional DivisionsFunctional Divisions
Product Division Product Division GeographicalGeographical
StructureStructure Area StructureArea Structure
Global Product StructuresGlobal Product Structures
OROR
Global Area Global Area Global ProductGlobal Product
StructureStructure Structure Structure
Global Matrix StructureGlobal Matrix Structure
Flexible Matrix StructureFlexible Matrix Structure
OROR
Typical firm Structure:Typical firm Structure:
I . Firm with a narrow product line:I . Firm with a narrow product line:
II. Firm with a wide product line:II. Firm with a wide product line:
Note: Export manager and staff may report directly Note: Export manager and staff may report directly to CEO.to CEO.
CEOCEO
FINANCEFINANCE PRODNPRODN HRHR MARKETINGMARKETING EXPORT DEPTEXPORT DEPT
Small Small AppliancesAppliances
Large Large AppliancesAppliances
Industrial Industrial EquipmentEquipment
Financial Financial ServicesServices
III. International Division on Product III. International Division on Product Structure Basis:Structure Basis:
IV. International Division on Area IV. International Division on Area Structure Basis:Structure Basis:
Example: Harley – Davidson of U.SExample: Harley – Davidson of U.S
V. The Global area structure:V. The Global area structure:
CORP.STAFFCORP.STAFF
Line ManagementLine Management
CEOCEO
FINANCEFINANCEPRODNPRODN R&DR&DMARKETINGMARKETING EXPORT DEPTEXPORT DEPT
N. AMERICAN. AMERICA EUROPEEUROPE L. AMERICAL. AMERICA ASIAASIA
INDIAINDIA
CHINACHINA
INDONESIAINDONESIA
V. The Global Product Structure:V. The Global Product Structure:
CORP.STAFFCORP.STAFF
Line ManagementLine Management
CEOCEO
FINANCEFINANCEPRODNPRODN R&DR&DMARKETINGMARKETING PERSONNELPERSONNEL
Product Product Divn. ADivn. A
Product Product Divn. BDivn. B
Product Product Divn. CDivn. C
Product Product Divn. EDivn. E
INDIAINDIACHINACHINA
INDONESIAINDONESIA
Product Product Divn. CDivn. C
EUROPEEUROPE ASIAASIA MIDEASTMIDEAST AFRICAAFRICA
Marketing Marketing ProductionProduction FinanceFinance
VI. The Global Matrix Structure :VI. The Global Matrix Structure :
CEOCEO
FINANCEFINANCEPRODNPRODN R&DR&DMARKETINGMARKETING PERSONNELPERSONNEL
EuropeEurope TractorsTractors AsiaAsia Other area Other area & Product & Product DivisionsDivisions
GM, GM, Tractors, Tractors,
AsiaAsia
GM, GM, Tractors, Tractors, EuropeEurope
Political Risk Rating Method –Political Risk Rating Method –A Model (IMR)A Model (IMR)
Type of Type of RiskRisk
ExamplesExamples Minimum Minimum ScoreScore
Maximum Maximum ScoreScore
Pol./ Econ. Pol./ Econ. EnvironmentEnvironment
Pol. StabilityPol. Stability 33 1414
Possibility of Internal conflictsPossibility of Internal conflicts 00 1414
External threat to stabilityExternal threat to stability 00 1212
Degree of econ. ControlDegree of econ. Control 55 99
Dependability as trading Dependability as trading partnerpartner
44 1212
Constitutional guaranteesConstitutional guarantees 22 1212
Effectiveness of public Effectiveness of public administrationadministration
22 1212
Quality of labour relations / Quality of labour relations / social peacesocial peace
33 1515
Domestic Econ. Domestic Econ. ConditionsConditions
Pop. SizePop. Size 44 88
Per cap. incomePer cap. income 22 1010
Econ. Growth last 5 yearsEcon. Growth last 5 years 22 77
Potential growth last 3 Potential growth last 3 yearsyears
33 1010
Inflation last 2 yearsInflation last 2 years 22 1010
Openness of cap. Mkt for Openness of cap. Mkt for foreignersforeigners
33 77
Availability of high quality Availability of high quality labourlabour
22 88
Ability to hire foreignersAbility to hire foreigners 22 88
Availability of energy Availability of energy resourcesresources
22 1414
Regulations on envrtRegulations on envrt 44 88
Standard of infrast.Standard of infrast. 22 1414
Type of RiskType of Risk ExamplesExamples Minimum Minimum ScoreScore
Maximum Maximum ScoreScore
Type of RiskType of Risk ExamplesExamples Minimum Minimum ScoreScore
Maximum Maximum ScoreScore
External Econ. External Econ. RelationsRelations
Import restrictionsImport restrictions 22 1010
Export restrictionsExport restrictions 22 1010
FDI restrictionsFDI restrictions 33 99
Brand / T. Mark protectionBrand / T. Mark protection 33 99
Rstres on money transfersRstres on money transfers 22 88
Currency revaluation Currency revaluation previous 5 yearsprevious 5 years
22 77
BOP conditionBOP condition 22 99
Amount of oil/energy Amount of oil/energy importsimports
33 1414
Intl financial standingIntl financial standing 33 88
Currency exchange Currency exchange restrictionsrestrictions
22 88
DirectDirect IndirectIndirect
Defensive / Defensive / ReactiveReactive
Legal actionLegal action Risk insuranceRisk insurance
(eg: ECGC of India)(eg: ECGC of India)
Make operations Make operations dependent on parent co.dependent on parent co.
Contingency planning Contingency planning methodsmethods
Control makeup of Control makeup of managementmanagement
Home country Home country government pressuregovernment pressure
Linking / MergingLinking / MergingLong-term agreementsLong-term agreements Lobbying foreign Lobbying foreign
governmentsgovernments
JVsJVs
Promoting host goalsPromoting host goals
Becoming good Becoming good corporate citizen to corporate citizen to host countryhost country
Approaches to managing riskApproaches to managing risk
MODEL FOR ECONOMIC VIABILITY PROFILEMODEL FOR ECONOMIC VIABILITY PROFILEWITH WEIGHTS FOR DIFFERENT SETSWITH WEIGHTS FOR DIFFERENT SETS
CriteriaCriteria IndicatorIndicator WeightWeight
Growth RateGrowth Rate Change of GDPChange of GDP
Level of DevelopmentLevel of Development GDP Per CapitaGDP Per Capita
InflationInflation RateRate 40%40%
InvestmentsInvestments as % of GDPas % of GDP
Fiscal PolicyFiscal Policy Net Budget Deficit as % of GDPNet Budget Deficit as % of GDP
External Debt External Debt as % of Exports as % of Exports 30% 30%
Debt Repayment Debt Repayment as % of Exports as % of Exports
International Trade International Trade Liquidity Liquidity
Balance of Trade in % of GDP Balance of Trade in % of GDP
Foreign Exchange reserves in % of Foreign Exchange reserves in % of Imports Imports
30%30%
EUROMONEYEUROMONEY: : COUNTRY RISK ASSESSMENTCOUNTRY RISK ASSESSMENT Economic Data (25% weight)Economic Data (25% weight) Political Risk (25% weight)Political Risk (25% weight) Debt indicators (10% weight)Debt indicators (10% weight) Debt defaulted/rescheduled (10%)Debt defaulted/rescheduled (10%) Credit ratings (10%)Credit ratings (10%) Access to bank finance (5%)Access to bank finance (5%) Access to short-term finance (5%)Access to short-term finance (5%) Access to international bond/syndicated Access to international bond/syndicated
loan loan markets (5%)markets (5%) Access to forfaiting (5%)Access to forfaiting (5%)
Indian Corporate Acquisitions AbroadIndian Corporate Acquisitions Abroad
2007 – Deals worth $42.6 b. (China 2007 - $13b. Russia - $15 b)2007 – Deals worth $42.6 b. (China 2007 - $13b. Russia - $15 b)
Largest: Tata – Corus; Hindalco – Novelis (Canada)Largest: Tata – Corus; Hindalco – Novelis (Canada)
Between 2003 – 2004: Value of foreign acquisitions more than Between 2003 – 2004: Value of foreign acquisitions more than doubled each year, with a compound annual growth of 108%doubled each year, with a compound annual growth of 108%
SuccessSuccess rate : Between 2003 and 2004 in 42 Indian deals, about rate : Between 2003 and 2004 in 42 Indian deals, about one-third generated 10% above the normal index for foreign one-third generated 10% above the normal index for foreign acquisitions.acquisitions.
Bains’ Study 2005: Only one-third of all foreign deals are Bains’ Study 2005: Only one-third of all foreign deals are successful one year after announcement.successful one year after announcement.
Indian companies, on average are as successful as these US and Indian companies, on average are as successful as these US and European peers.European peers.
Some important ones:Some important ones:
Tata – TetleeTata – Tetlee
Videocon – Thomson (color picture tube plants) 2005Videocon – Thomson (color picture tube plants) 2005
VSNL – Teleglobe (Canada) – 2006VSNL – Teleglobe (Canada) – 2006
Dr. Reddy Labs – Betapharm (Germany) – 2006Dr. Reddy Labs – Betapharm (Germany) – 2006
Apollo – Dunlop South Africa (2006)Apollo – Dunlop South Africa (2006)
Mahindra – Valtra (Finnish truck co.)Mahindra – Valtra (Finnish truck co.)
United Breweries (Whyte & MackKay – Scotland)United Breweries (Whyte & MackKay – Scotland)
Godrej – Keyline (FMCG firm, UK)Godrej – Keyline (FMCG firm, UK)
Jindal Steel & Power – iron ore mine in Bolivia (2006)Jindal Steel & Power – iron ore mine in Bolivia (2006)
Tata Tea – Energy Brands (US)Tata Tea – Energy Brands (US)
Tata Motors – Jaguar / Land RoverTata Motors – Jaguar / Land Rover
ONGC Videsh – Ominex, ColumbiaONGC Videsh – Ominex, Columbia
Suzlon Energy – Hansen Transmission, BelgiumSuzlon Energy – Hansen Transmission, Belgium
Indian IT could do substantial global acquisitions, Indian IT could do substantial global acquisitions, but the larger acquisitions so far have been in other but the larger acquisitions so far have been in other areas.areas.
Acquisitions give Indian firms:Acquisitions give Indian firms: a global scalea global scale a portfolio of recognized brandsa portfolio of recognized brands access to huge marketsaccess to huge markets
But also involve as key challenges:But also involve as key challenges: difficult integration processes between different difficult integration processes between different
management mindsetsmanagement mindsets Stark cultural differencesStark cultural differences Out-of-sync operational processesOut-of-sync operational processes HRs, deriving value through organizational structuresHRs, deriving value through organizational structures Navigating complex labour laws Navigating complex labour laws
Indian MNCs in Boston Consulting Indian MNCs in Boston Consulting Group’s Challengers 100Group’s Challengers 100
Bajaj AutoBajaj Auto - Automotive Equipment- Automotive EquipmentBharat ForgeBharat ForgeBirla HindalcoBirla Hindalco - Non-ferrous metals- Non-ferrous metalsCipla Cipla - Pharmaceuticals- PharmaceuticalsCromption GravesCromption Graves - Engineered Products- Engineered ProductsDr. Reddy’sDr. Reddy’s - Pharmaceuticals- PharmaceuticalsInfosys Technologies Infosys Technologies - IT Services / BPO- IT Services / BPOLarsen & ToubroLarsen & Toubro - Engineering Services- Engineering ServicesMahindra & MahindraMahindra & Mahindra - Automotive Equipment- Automotive EquipmentSatyam Computer Services – IT Services / BPOSatyam Computer Services – IT Services / BPO
Suzlon EnergySuzlon Energy - Wind energy- Wind energyTata Consultancy ServicesTata Consultancy Services - IT Services / BPO- IT Services / BPOTata MotorsTata Motors - Automotive - Automotive
EquipmentEquipmentTata SteelTata Steel - Steel- SteelTata TeaTata Tea - Food and Beverages- Food and BeveragesVideocon IndustriesVideocon Industries - Consumer Electronics- Consumer ElectronicsVSNLVSNL - Telecom Networks- Telecom NetworksWipro TechnologiesWipro Technologies - IT Services / BPO- IT Services / BPO
China Challengers (41)China Challengers (41)
Bay steelBay steelBYD BYD – Consumer Electronics– Consumer ElectronicsChanghong Changhong – Home Appliances– Home AppliancesCherry AutomobilesCherry AutomobilesChina MobilesChina MobilesCIMC CIMC – Shipping– ShippingCNOOC CNOOC – Oil– OilFAW FAW – Auto equipment– Auto equipmentHaier Haier – Home appliances– Home appliancesHisenseHisense – Consumer Electronics– Consumer ElectronicsHuawei Technologies Huawei Technologies – Telcom Equipment– Telcom EquipmentJohnson Electric Johnson Electric – Engineering products– Engineering productsLenovo Lenovo – Computers– ComputersPetro China Petro China – Oil– OilTCL Corporation TCL Corporation – Consumer Electronics– Consumer ElectronicsZTE ZTE – Telcom Equipment– Telcom Equipment
Off-shoring ServicesOff-shoring ServicesWidely used as a particular subcategory of Widely used as a particular subcategory of
“outsourcing”“outsourcing”So 4 types of ‘outsourcing’ based on location and So 4 types of ‘outsourcing’ based on location and
control / ownership are:control / ownership are:1.1. Captive onshore outsourcing: shift of intra-firm Captive onshore outsourcing: shift of intra-firm
supplies to an affiliated firm in the home countrysupplies to an affiliated firm in the home country2.2. Non-captive: if shift benefits a non-affiliated firm Non-captive: if shift benefits a non-affiliated firm
in the home economyin the home economy3.3. captive offshoring: when supplies sourced from captive offshoring: when supplies sourced from
an affiliated firm abroadan affiliated firm abroad4.4. Non captive offshoring: When supplies are Non captive offshoring: When supplies are
source from a non-affiliated firm abroad.source from a non-affiliated firm abroad.Outsourcing is not a new phenomenon.Outsourcing is not a new phenomenon.
Potential for offshoring depends on:Potential for offshoring depends on:• technical and institutional separabilitytechnical and institutional separability• to what extent the task is standardised to what extent the task is standardised • transaction and managerial costs within the firm relative transaction and managerial costs within the firm relative
to outside suppliersto outside suppliers• production costsproduction costs• size of the marketsize of the market
The location of offshored services depends on:The location of offshored services depends on:• labour costslabour costs• trade coststrade costs• quality of institutions, specially legal frameworkquality of institutions, specially legal framework• tax and investment regimetax and investment regime• quality of infrastructure – esp. telecomsquality of infrastructure – esp. telecoms• skills – esp. language and computer skills.skills – esp. language and computer skills.
Two-thirds of offshoring is estimated to be captive Two-thirds of offshoring is estimated to be captive offshoringoffshoring
Estimates of size of offshoring services Estimates of size of offshoring services in IT and Business Process:in IT and Business Process:
OECD (2005): $32 b. (2001)OECD (2005): $32 b. (2001)McKinsey (2003): $35 b. (2001)McKinsey (2003): $35 b. (2001)
India’s ranking:India’s ranking:In computer & Information In computer & Information
Services: 1(@ $ 31 b.)Services: 1(@ $ 31 b.)In computer Information and In computer Information and
other business services: 8other business services: 8Analyse:Analyse:
India’s strengthsIndia’s strengthsWeaknessesWeaknesses
Data on Indian IT exportsData on Indian IT exports
FY – 07FY – 07 FY (est.) 08FY (est.) 08
IT softwareIT software $22.9 b.$22.9 b. $ 28 – 29 b.$ 28 – 29 b.
ITes – BPOITes – BPO $ 8.4 b.$ 8.4 b. $10.5 – 11 b.$10.5 – 11 b.
TotalTotal $31.4 b.$31.4 b. $ 39 – 40 $ 39 – 40 b.b.
Industry employment in FY 07 - 1.6 millionIndustry employment in FY 07 - 1.6 million
indirect employment due toindirect employment due to
IT – ITesIT – ITes -- nearly 6 millionnearly 6 million
TotalTotal -- 7.5 million7.5 million
Process of International MarketingProcess of International Marketing
Motives for international marketingMotives for international marketing− GrowthGrowth− ProfitabilityProfitability− Risk spreadRisk spread− Access to imported inputsAccess to imported inputs− Uniqueness of product / servicesUniqueness of product / services− Life cycle-oriented marketing Life cycle-oriented marketing
opportunitiesopportunities− Spreading R&D costsSpreading R&D costs
SWOT AnalysisSWOT Analysis
Decision to enter international marketsDecision to enter international markets
International marketing decisionsInternational marketing decisions– Market identification and targeting (Segments)Market identification and targeting (Segments)– Choice of entry modeChoice of entry mode– Product decisionsProduct decisions– Distribution channel decisionsDistribution channel decisions– Market promotion decisionsMarket promotion decisions
Enter international marketsEnter international markets
Review performanceReview performance
Consolidate marketing efforts for global Consolidate marketing efforts for global marketingmarketing
Computation of Market PotentialComputation of Market PotentialIs evaluated, according to one method by 8 Is evaluated, according to one method by 8 dimensions with weights attached to each:dimensions with weights attached to each:
Measures Used
Market Size 10/50 Urban, rural populations – Electricity consumption etc
Market growth rate 6/50 GDP growth rate
Market intensity 7/50 GNI per capita as per PPP – private consumption.
Market consumption capacity
5/50 Percentage of middle class in consumption
Commercial infrastructure 7/50 Telephone and road density, retail outlets etc
Market receptivity 6/50 Trade as percentage of GDP
Country risk 4/50
Analysis of international marketsAnalysis of international markets2 Models :
BCG Matrix:
Classification of markets on the basis of growth rate and market share:
High – growth High – share products (stars) Low – growth High – share products (cash cows) High – growth Low – share products (Question marks) Low – growth Low – share products (Dogs)
Market attractiveness / company strength matrix:Market attractiveness / company strength matrix:
Combining market attractiveness and competitive Combining market attractiveness and competitive strength of a company, both based on various strength of a company, both based on various factors. Firm’s focus is to be at the point where factors. Firm’s focus is to be at the point where the two are very high.the two are very high.