Global Entrepreneurship

Developing Global Mindset for Entrepreneurs

Global Entrepreneurship developing the global mindset for entrepreneurs

Class 8Saturday May 29th 2010

Brian David Butler

Professor of international finance and global entrepreneurship with Forum-Nexus Study Abroad Guest lecturer with the IQS Business School of the Ramon Llull University in Barcelona and the Catholic University of Milan Previously Brian taught finance economics and global trade courses at Thunderbirdrsquos Global MBA program in Miami and worked as a research analyst at the Columbia University Business School in New York City

A global citizen Brian was born in Canada raised in Switzerland (where he attended international British school) educated through university in the US started his career with a Japanese company moved to New York to work as an analyst married a Brazilian and has traveled extensively in Latin America Asia Europe and North America Brian currently lives in Recife Brazil where he is teaching classes on ldquoGlobal Entrepreneurshiprdquo at the university FBV

briandbutlergmailcom

LinkedInbriandbutler

Skype briandbutler

Global Entrepreneurship developing the global mindset for entrepreneurs

Class 8Saturday May 29th 2010

Brian David Butler

Professor of international finance and global entrepreneurship with Forum-Nexus Study Abroad Guest lecturer with the IQS Business School of the Ramon Llull University in Barcelona and the Catholic University of Milan Previously Brian taught finance economics and global trade courses at Thunderbirdrsquos Global MBA program in Miami and worked as a research analyst at the Columbia University Business School in New York City

A global citizen Brian was born in Canada raised in Switzerland (where he attended international British school) educated through university in the US started his career with a Japanese company moved to New York to work as an analyst married a Brazilian and has traveled extensively in Latin America Asia Europe and North America Brian currently lives in Recife Brazil where he is teaching classes on ldquoGlobal Entrepreneurshiprdquo at the university FBV

briandbutlergmailcom

LinkedInbriandbutler

Skype briandbutler

Brian David Butler

Professor of international finance and global entrepreneurship with Forum-Nexus Study Abroad Guest lecturer with the IQS Business School of the Ramon Llull University in Barcelona and the Catholic University of Milan Previously Brian taught finance economics and global trade courses at Thunderbirdrsquos Global MBA program in Miami and worked as a research analyst at the Columbia University Business School in New York City

A global citizen Brian was born in Canada raised in Switzerland (where he attended international British school) educated through university in the US started his career with a Japanese company moved to New York to work as an analyst married a Brazilian and has traveled extensively in Latin America Asia Europe and North America Brian currently lives in Recife Brazil where he is teaching classes on ldquoGlobal Entrepreneurshiprdquo at the university FBV

briandbutlergmailcom

LinkedInbriandbutler

Skype briandbutler

wwwKookyPlancom

Schedule for today

1 Culture + Entrepreneurs2 Homework review ndash personal COI3 Exam return4 Entrepreneurship ideas5 Market entry strategy

COI amp Entrepreneurship

Entrepreneurship and culture

Question Are there any cultural aspects that lead

to entrepreneurship Are certain cultures more

ldquoentrepreneurialrdquo Can ldquostyle switchingrdquo be encouraged for

entrepreneurship

Class discussionhellip

Entrepreneurship and culture

Entrepreneurship and culture

Entrepreneurship and COI

1 Development issue Which cultural traits probably lead to more

entrepreneurship hence more economic development

Which factors are most important for entrepreneurship + level of entrepreneurship in different places

2 Personal issue What style switching should you do to

promote entrepreneurship

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

COI amp Entrepreneurship

Entrepreneurship and culture

Question Are there any cultural aspects that lead

to entrepreneurship Are certain cultures more

ldquoentrepreneurialrdquo Can ldquostyle switchingrdquo be encouraged for

entrepreneurship

Class discussionhellip

Entrepreneurship and culture

Entrepreneurship and culture

Entrepreneurship and COI

1 Development issue Which cultural traits probably lead to more

entrepreneurship hence more economic development

Which factors are most important for entrepreneurship + level of entrepreneurship in different places

2 Personal issue What style switching should you do to

promote entrepreneurship

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and culture

Question Are there any cultural aspects that lead

to entrepreneurship Are certain cultures more

ldquoentrepreneurialrdquo Can ldquostyle switchingrdquo be encouraged for

entrepreneurship

Class discussionhellip

Entrepreneurship and culture

Entrepreneurship and culture

Entrepreneurship and COI

1 Development issue Which cultural traits probably lead to more

entrepreneurship hence more economic development

Which factors are most important for entrepreneurship + level of entrepreneurship in different places

2 Personal issue What style switching should you do to

promote entrepreneurship

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and culture

Entrepreneurship and culture

Entrepreneurship and COI

1 Development issue Which cultural traits probably lead to more

entrepreneurship hence more economic development

Which factors are most important for entrepreneurship + level of entrepreneurship in different places

2 Personal issue What style switching should you do to

promote entrepreneurship

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and culture

Entrepreneurship and COI

1 Development issue Which cultural traits probably lead to more

entrepreneurship hence more economic development

Which factors are most important for entrepreneurship + level of entrepreneurship in different places

2 Personal issue What style switching should you do to

promote entrepreneurship

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and COI

1 Development issue Which cultural traits probably lead to more

entrepreneurship hence more economic development

Which factors are most important for entrepreneurship + level of entrepreneurship in different places

2 Personal issue What style switching should you do to

promote entrepreneurship

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and culture

What COI factors are concentrated in entrepreneurs

Any guesses

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Hierarchy vs Equality

Why not me attitude in cultures with ldquoEqualityrdquo culture

people think that everyone is equal and that anyone can achieve great success

The legend of kids creating multinational corporation from their garageshellipfuels this optimism that anyone can achieve greatness

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and COI

1 Environment Control

World can be changed to fit ldquomerdquo Not ldquoharmonyrdquo or ldquoconstraintrdquo

2 Individualism Particularistic

ldquorules donrsquot apply to merdquo (not constrained)

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and COI

4 Competitiveness Are you comfortable with competition Desire for self-recognition Wiling to leave the group loyal to the group

(thinking)5 Structure ndash

Flexibility Not ldquoorderrdquo focused Better if likes flexibility innovation adaptation Comfortable with risks Dynamic goals (changing) Problem solving needs flexibility Tolerate unpredictable dissent (Israel)

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and COI

6 Thinking Inductive vs Deductive Slight advantage to deductive thought ndash

not constrained by ldquofactrdquo but instead gravitate to grand theories and ldquovisionsrdquo (visionary)

Inductive is better for big-company (systematic process) innovations

Deductive is better for entrepreneurs and big changes

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Entrepreneurship and COI

7 Time Future orientation Multi-focused (to wear ldquoall hatsrdquo during

startup phase)

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Homework Review

Personal COI

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Homework - personal COI analysis

Compare yourself with this hypothetical German person

Deductive linear doing low-context direct fluid time single focus competitive equality

See next slide

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Cultural Orientations Indicator- COI

bull Deductive

bull Linear

bull doing

bull low-context

bull direct

bull fluid time

bull single focus

bull competitive

bull equality

Gap Analysis

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Homework - personal COI analysis

Gap analysis

Questions Which areas do you have the greatest

gaps (areas of potential conflict) What could you do (style switching) to

lesson the potential problems

Class discusshellip

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Exam Review

Review ndash grades

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Need Exams Back

Keep for 1 week Need to return next week to me

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

GradingComponents of Final Grade

Exam a- 20 Exam b- 30 Team project 25 Assignments 15 Class participation 10

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Good news Bad news

This exam was only 20 of your final grade

So if you didnrsquot do wellhellip Or if you did do wellhellip

there is still time

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Upcoming Schedule

4 more classes Today June 5th

June 12th

June 19th ndashExamOne week later ndash team project due June 26th -

25 of your grade

Attendance + Homework = 25 of your grade

30 of your grade

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Still timehellip

Homework assignments I f you missed any homeworkhellip you may

still submit them How Review slides from previous

lectures Look for homework assignments If you didnrsquot do anyhellip DO THEM NOW

Group Project Get together and start working today Donrsquot wait till the last second

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Group Project ReviewWho are the teams - one group of 5 - or two smaller groups

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

New Ideas

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

What new business ideas Discusshellip

+1 point for participation grade for students with original ideas (not previously discussed in class)

Include 3-questions analysis of idea What problem What trend What

transferrable (so start with idea then use 3 questions to evaluate)

Mine water cup ndash airports ndash transfer from Brazil Problem is price size Trend is economic crisis

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Going global

Market entry strategies for Entrepreneurs

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Deciding HOW to go global

Deciding to go global is not enoughhellip

Next you need to decide HOW to go global

Export license franchise create a subsidiary foreign direct investment acquire a company abroad etchellip

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Approaches to Foreign Market Entry

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to

foreign marketBartlett amp Ghoshal

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

How to go global

Exports (a) direct (b) through a distributor (c) through a trading

company Contracting

Examples (a) licensing technology (b) franchising (c) management contracting (d) turnkey venture (e) joint marketing agreement

Partially owned Direct investment Examples (a) joint venture with local company (b) joint

venture with foreign company (c) joint venture with government

Fully owned Direct investment Examples (a) assembly plant for local sales (b) basic

manufacturing (c) raw materials extraction (d) offshore assembly plant

Professor Robert Grosse Thunderbird

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Methods for Exploiting Core Competencies through Foreign Involvement

Decision Criteria

Form of Foreign Involvement

Added Income

Capital

Commitment

Management Commitment

Technology Commitment

Political Risk

Flexibility

Impact on

Rivals

Exportsdagger Low Low Low Low High

ContractingDagger Low Possibly high Possibly high Low

Partially owned direct investmentsect

Possibly high High Medium Low

Wholly owned direct investmentII

High High Low High

Each column represents a dimension for decision-making that should be considered when choosing a method to use in exploiting a core competency The rankings will differ from company to company and also across countries

Professor Robert Grosse Thunderbird

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Deciding HOW to go global

But how do you decide which is right for you

1 You could see what others in your INDUSTRY are doing

How does the typical firm in your industry go abroad

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Globalization vs Localization of Industries

HIGH

LOW

LOW HIGH

Pre

ssu

res T

ow

ard

Glo

bal

Inte

gra

tion

AircraftCamerasConsumer ElectronicsComputers

Cement

Synthetic Fibers

Global Strategy

Automobiles

Aerospace

Telecommunications

Steel

Clothing

Multi-domestic Strategy

Packaged Foods

Pharmaceuticals

Pressures Toward Localization Source Professor Robert Grosse Thunderbird

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Global vs Local (review)

We have covered this before but its worth reviewinghellip

1 Global strategies Pressures toward globalization include economies

of scale and benefits from centralized decision-making

2 Local strategies Pressures toward localization (adaptation) include

cultural differences government regulation benefits from decentralized decision-making

Bartlett amp Ghoshal slides from Professor Robert Grosse Thunderbird

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

When FDI is appropriate

When should you choose to invest in FDI abroad

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

FDI ndash Foreign Direct Investment

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Demand Side ndash looking for customers

1 To explore new markets and to serve a ldquoportfoliordquo of markets

2 Because an export market was closed by a prohibitive tariff or quota

Reasons for Foreign Direct InvestmentSupply Side ndash

looking for raw materials

1To lower production costs

2To lower delivery costs (costs of transportation insurance tariffs etc)

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Demand Side ndash looking for customers

3 To establish a local presence with service and product availability

4 To meet ldquobuy nationalrdquo rules or preferences in the host country

Reasons for Foreign Direct Investment

Supply Side ndash looking for raw materials

3 To acquire a necessary raw material

4 To do offshore assembly

5 To establish a ldquoportfoliordquo of production sources

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Demand Side5 To gain visibility

as a ldquolocalrdquo firm employing local people paying local taxes

6 To respond to rivalsrsquo threats

Reasons for Foreign Direct InvestmentSupply Side6To obtain

technology and skills

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Foreign Direct Investment

Deciding YESNO

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view ndash OLI FDI decision should be made on the

grounds of these three factors

1 Ownership advantages (competitive advantages)

the companyrsquos competitive advantages such as proprietary technology management skills goodwill and economies of scale

a company should use foreign direct investment when it has competitive advantages such as proprietary technology or marketing skills that differentiate it from competitors Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view ndash OLI 2 Location advantages (comparative advantage)

the relevant cost risk and regulatory conditions in the countries under consideration These include national production costs tariffs taxes international transportation costs and political risks

a company should use foreign direct investment when the location factors favor local production over importing from the home country Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view ndash OLI 3 Internalization advantages (advantages of horizontal and vertical

integration) the benefits that the firm would realize by itself

operating in the host country versus the benefits of operating through a local distributor licensee or other contractee

a company should use foreign direct investment hellipand when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production) Professor Robert Grosse

Thunderbird

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view

If all three conditions do not hold then another strategy would be better

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view

the eclectic theory says that a company should use foreign direct investment whena) it has competitive advantages such as

proprietary technology or marketing skills that differentiate it from competitors

b) when the location factors favor local production over importing from the home country

c) and when it is more profitable for the firm to produce for itself rather than to contract out with another firm to produce for it (for example under a licensing agreement or for contract production)

Professor Robert Grosse Thunderbird

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Dunningrsquos eclectic view ndash OLI To decide whether to invest overseas

there is a useful model

OLI Ownership advantagesLocation advantages Internalization advantages

Need all 3 ndash or else donrsquot invest in FDI Instead ndash choose other method ndash

export license franchise etcProfessor Robert Grosse Thunderbird

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

When to Export (instead of FDI)

If company has 2 out of 3 competitive advantages (O) and finds that producing for itself (I)

would be more profitable than contracting out to another firm under license

but costs in foreign country (L) are higher

than costs in the home country then should export its products

Professor Robert Grosse Thunderbird

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Export (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

When to license

If company has other 2 out of 3 (O) competitive advantages (L) and lower costs in foreign country than

elsewhere but

(i) finds that contracting out to another manufacturer would be more profitable than producing for itself

then company should license its products to the other

company for sale or should contract out the manufacturing and keep

the distribution and marketing business for itselfProfessor Robert Grosse Thunderbird

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Licensing (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

When to ldquojoint venturerdquo

If company (L) finds foreign country to be a cost-competitive

place to manufacture (i) and company finds that it would be more profitable

to manufacture for itself rather than contracting out But (O) no superior products or marketing skills

(competitive advantages)

then the possible solutions would be a joint venture with another firm that does have competitive

advantages or the purchase of product lines that are differentiated and

competitive to give company a competitive base in foreign country

Professor Robert Grosse Thunderbird

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Joint Venture (rather than FDI)

HIGH

LOW

LOW HIGH

Level of

CO

NTR

OL o

ver

fore

ign

acti

vit

ies

Indirect Export

Export through agent or distributor

Commitment Amount of Resources committed to foreign market

Joint Venture with local partner

FDI Wholly owned subsidiary

Franchising

Licensing

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

When you shouldnt go Global Three questions to ask

Are there potential benefits for our company Donrsquot just follow competitors Donrsquot overestimate the benefits

Do we have the necessary management skills (do you REALLY have the skills)

Will the costs outweigh the benefits (extra coordination costs setup costs etc)

httpglobotrendspbworkscominternational+expansion

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

When you shouldnt go Global Examples of failed globalization strategies

ABN AMRO AES - (US power company) Daimler- Chrysler merger BTR - industrial conglomerate TCL - Chinese maker of electronics Kelda - a UK water utility Deutsche Telekom (T-mobile) Deutsche Post - overpaid for DHL and Airborne AXA - French insurance group BenQ- acquisition of Siemens mobile device

business httpglobotrendspbworkscominternational+expansion

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Do you have the skills

new management requirements for companies attempting to internationalize

Companies that are lacking in organizational strength may want to consider selling or licensing technology or brand name exporting or franchising as less- risky ways of going abroad

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Do you have the skills

Once a firm internationalizes they typically run into the dilemma of trying to achieve global scale and local responsiveness at the same time

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Need for International IQ

A global manager also has to be on the lookout for macroeconomic changes and to be aware that countries (and individual states) have their own objectives and that there is a risk that those objectives might change over time

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Need for International IQ

You need to monitor changes in elections and policies to see if country strategy and yours become misaligned This could result in serious risk (or opportunities) for your company

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Strategies for going global

Market entry strategies for Entrepreneurs

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Different types of Strategies1 International - typical USA

2 Multi-National - typical Europeanldquomulti-domesticrdquo

3 Global - typical Japanese

Transnational - tries to combine best of all 3

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

International Mentality

ldquointernationalrdquo strategy ndash classic US based companies strategy

ldquoInternational Product cyclerdquo

Products first developed for home market only later sold abroad

Foreign subsidiaries as ldquooutpostsrdquo - marketing and sales appendages

Innovations developed at home transferred abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

International Mentality

Managers assigned are often domestic ldquomisfitsrdquo who happen to know a foreign language or previously lived abroad

Bartlett amp Ghoshal interpreted by Prof Brian Butler

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

International

Weakness lacked the corporate structure for

capturing worldwide innovation and learning

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Multi-National

The classic ldquomultinationalrdquo model is seen in abundance with European firms

manage a portfolio of relatively independent national subsidiaries

With a long history of protectionism and wars European companies became very adept at managing a decentralized federation running subsidiaries with a high level of autonomy

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Multi-National

Emphasize differences among national markets

Flexible approach

Modify products strategies country-by-country

Multiple-nationally responsive strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Multi-National

Managers of foreign operations Highly independent entrepreneurs

Often nationals of foreign markets

Use local market knowledge

Seek local growth using investment from parent company

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Multi-National

One of the drawbacks however is that they have given up global scale

efficiency and may be redundant in many of their tasks

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Global

The ldquoglobalrdquo model which is epitomized by companies such as Toyota focused on centralizing efforts and gaining efficiency for exports

Centralized control

Assume tastes globally are similar

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Global

Weakness lack of local responsiveness and flexibility

Management central coordination central control

Research amp Development ndash from home country

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Transnational

Transnational companies are complex organizations that attempt to extract the benefits of ldquointernationalrdquo ldquoglobalrdquo or ldquomultinationalrdquo firms but at the same time they try to mitigate the drawbacks from each

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Transnational

A transnational firm is a very sophisticated and complex one that requires a very subtle management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and strategies

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Transnational

The transnational company is one that attempts to capture all of the strengths of these three global strategies and attempts to avoid any of the weaknesses

HIGHEST LEVEL OF SOPHISTICATION

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Transnational

decentralizing decision making power and to increase the local responsiveness to local market conditions

transnational mindset of brand management where winning brands can be developed anywhere

local flexibility global efficiency or worldwide learning

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

VALUE CHAIN

transnational companies locate each of these activities in an area that gives them the largest competitive advantage and lowest costs for each individual function operations RampD sales marketing

customer service and purchasing

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

VALUE CHAIN

Manufacturing for example might be placed in the location with the lowest factor input costs related to labor

but RampD might be located in a place which has advanced education a history of innovation or a developed and highly competitive consumer market

Bartlett amp Ghoshal interpreted by Prof Brian Butler

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

VALUE CHAIN

For example the USA might be selected for design China for manufacturing UK for research and India for call center outsourcing or

software design creating many ldquocenters of excellencerdquo

across the globe which are all globally linked together through the value chain

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

Where should innovation come from

Just the USA Just big multi-nationals

NO

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

Two models center-for-global innovation model

All innovation at home RampD center Innovations developed at home are later sent to the field

locally-leveraged but then globally-linked innovation models Innovation can come from anywhere Companies try to ldquocatchrdquo innovation from the field Share innovation from one emerging market to

another

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

The global market for knowledge is changing and it is common to find centers for innovation in many non-traditional market locations around the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

The old thinking USA was the best location for developing

innovation which directly led to the strategy of ldquointernationalrdquo that many US based companies followed

The idea was that the USA had the most sophisticated consumer market the most developed technology and the highest level of competition which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

New Thinking Assumption challenged as other markets

have developed in their ability to produce global innovations

As an example ldquoSkyperdquo a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley)

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

New Thinking Based on this new understanding of how

innovations can come from anywhere companies are attempting to capture worldwide knowledge like never before

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Innovation Models

New challenges The challenge for transnational

companies is to figure out how to capture and leverage this worldwide knowledge base

If they can do this effectively this is one of the main sources of competitive advantage that a transnational company will have over its international global or multinational competitors

Bartlett amp Ghoshal interpreted by Prof Brian Butler

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Homework

Sorry

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Homework

In your own words tell me 5 reasons that international experience is important for your career

(ldquointernational experiencerdquo could be = travel or internships or study abroad etc)

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

Homework

Read this article httpepocanegociosglobocomRevistaComm

on0EMI131166-1638000-O+TRABALHO+E+PLANOhtml

ldquoO trabalho eacute planordquo Cada vez mais cedo jovens executivos constroem sua carreira em diferentes paiacuteses dos cinco continentes para conquistar vivecircncia em outros mercados e culturas Entenda essa nova geraccedilatildeo global e o que as

empresas tecircm a ganhar com ela Por Ivan Padilla e Marcos Todeschini

Homework read and then think In your own words tell me 5 reasons that international experience is important for your career

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• Deciding HOW to go global (2)
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• Global vs Local (review)
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• Reasons for Foreign Direct Investment
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• Foreign Direct Investment
• Dunningrsquos eclectic view ndash OLI
• Dunningrsquos eclectic view ndash OLI (2)
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• Dunningrsquos eclectic view
• Dunningrsquos eclectic view (2)
• Dunningrsquos eclectic view ndash OLI (5)
• When to Export (instead of FDI)
• Export (rather than FDI)
• When to license
• Licensing (rather than FDI)
• When to ldquojoint venturerdquo
• Joint Venture (rather than FDI)
• When you shouldnt go Global
• When you shouldnt go Global (2)
• Do you have the skills
• Do you have the skills (2)
• Need for International IQ
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