Principles of Business

Global Business Models – Part 2

2

Overview

• Go into detail about the types of firms that are operating internationally and their structures e.g. MNC’s and born globals

• Detail the different forms of international business activity

• Strategic approaches to internationalisation• Consider the various product based strategies that are

available to global firms• What are the various market entry approaches that are

available to firms going global• Determining the optimal business model and structure

for global firms (considering Uppsala model)• Determine the key implications of competition versus

co-opetition business models • Determine why does the ‘black market’ exist• What are the key issues and challenges relating to the

black market

3

Learning Outcomes

• Go into detail about the types of firms that are operating internationally and their structures e.g. MNC’s and born globals

• Detail the different forms of international business activity• Strategic approaches to international markets• Consider the various product based strategies that are

available to global firms• What are the various market entry approaches that are

available to firms going global• Determining the optimal business model and structure for

global firms (considering Uppsala model)• Determine the key implications of competition versus co-

opetition business models • Determine why does the ‘black market’ exist• What are the key issues and challenges relating to the

black market

Operating On a Global Scale

Source: HEL.org.uk

An Example from FMCG

Strategic Approaches to International Markets

Multidomestic Strategy

A decentralised approach to international

expansion in which a company creates

highly independent operating units in each new country

Global StrategyLow global

integration and low local responsiveness. Categorised as a low

risk option involving a form of import/export

methodology

Strategic Approaches to International Markets

International Strategy

A highly centralised approach to international

expansion, with headquarters in the

home country making all major decisions

Transnational Strategy

A hybrid approach that attempts to reap

the benefits of international scale

while being responsive to local market dynamics

Uppsala Model of Internationalisation

Source: Uppsala

Concept of Psychic Distance

In international business and marketing settings, psychic distance is based on perceived differences between a home country and a "foreign" country regardless of physical time

and space factors which differs across diverse cultures.

These factors are associated with country-based diversities and dissimilarities and can be grouped into four clear areas —• Linguistic differences and translation difficulty.• Cultural Factors – societal norms, level of individualism

or collectivism, values and customs.• Economic Situation – existing trading links,

infrastructure, local conditions, competition and investor confidence.

• Political and Legal System – government stability and risk of instability, import tariffs, legal protection and taxation levels.

Source: Daniels et al, 2013

Decision to go ‘Global’: OLI Framework

• Entry mode is influenced by• Ownership advantages

– the firm’s core competencies

• Location advantages– the combination of sales

opportunity and investment risk that creates favorable locations in foreign markets

• Internalization advantages – reflect companies’ response

to market imperfections that often create uncertainties

John Dunning

Source: Daniels et al, 2013

Decision to go ‘Global’: OLI Framework

Source: Daniels et al, 2013

Born Globals

Classically, born globals, or international new ventures (INVs) are defined by one source as “business organisations that,

from inception, seek to derive significant competitive advantage from the use of resources and the sale of outputs

in multiple countries”. A more quantitative definition is “companies who have reached a share of foreign sales of at least 25 per cent within a time frame of two to three years

after their establishment”.

Key Principles:

New market conditions – the

presence of global networks and

alliances, homogenisation

of buyers’

Technological advances – advances in

communication technology, e-

business possibilities

Learning from overseas –

tapping into technological

innovation and the networks of

people

Globalisation or Glocalocalisation?

Significant socio-cultural and political convergence is

taking place leading to greater homogeneity of the

world

Theodore Levitt Roland Robertson

The heterogeneous nature of the world blends the ‘native’ and ‘foreign’

An HSBC Evolution… spot the difference

Pre-2010

Post-2010

Consider why they opted for this new approach?

Why global firms alter products?

• Labeling requirements• Environmental-protection

regulations• Indirect Legal Considerations• Issues of standardisation

Legal Considerations

• Religious considerations• Social considerations• Norms

Cultural Considerations

• Income level and distribution• Infrastructure

Economic Considerations

Let’s consider:

Re-Cap: McProduct

Re-Cap: McPrice

Re-Cap: McPlace

Re-Cap: McPromotion

Global Supply Chain

Source: Bovee et al, 2013

Competition or Co-opetition in Global Business?

Co-Creation Experience

Firm and Consumer (one to one)

Variety of Co-creation Experiences

Firm and Consumer Communities(one to many)

Personalisation of the Co-creation Experience

Multiple Firms and Multiple Communities

(many to many)

Patient

PrimaryDoctor

Medical Specialist

Scan Clinic

Doctor on call

Other Patients

Emergency Services

Manufacturer

Case Study: Cardiac Pacemakers

Source: The Future of Competition, Prahalad and Ramaswamy, 2004

Role of Strategic Alliances & JVs

View video: https://www.youtube.com/watch?v=yZFcsYuFYiY#t=70

Role of Strategic Alliances & JVs

Advantages Disadvantages

• Geographic synergies

• Economies of scale

• Reduced risk

• Shared learnings

• Cultural issues

• Realising synergies

• Dominant organisation (effective take-over)

The Global ‘Black’ Market: A growing industry?

The International Anti-Counterfeiting Coalition (IACC) estimates that international trade in illegitimate goods runs more than U.S. $600 billion a year – approximately 5 to 7% of world trade. Furthemore, piracy has grown over 10,000%

in the past two decades.

Counterfeiting is astoundingly

profitable: Gross margins of 500 to

5,000%

Counterfeit medicines are

more profitable than heroin

Copies of high-end software rival

return from cocaine

The Global ‘Black’ Market: A Mobile Example

View video: http://www.bbc.co.uk/news/uk-england-london-26979061

26

Essential work for next week

• Please consult the OLE for details of:– Essential readings*– Seminar/workshop preparation work*– Recommended further readings– Any additional learning

* Essential readings and preparation work must always be completed in time for the next session

Appendix – Sources for illustrations

Slide 5:www.flatworldknowledge.com

Slide 10:www.eiasm.org

Slide 13:www.21cbr.com

Slide 14:www.hsbc.com

Slide 16-19www.slideshare.com

Slide 22:www.denverpost.com

Slide 26: www.answers.com

End of presentation

© Pearson College 2013