6EC513 Global Business and Strategy Internationalisation Lecture PDF

6EC513 – Global Business and Strategy Week 6 Lecture Strategic choices and implementation Internationalisation, strategy evaluation, control and organising Dr. Koushik Das Sarma [email protected] Sensitivity:  2 6EC513 Sensitivity:  Recap  Globalisati...

6EC513 – Global Business and Strategy Week 6 Lecture Strategic choices and implementation Internationalisation, strategy evaluation, control and organising Dr. Koushik Das Sarma [email protected] Sensitivity:  2 6EC513 Sensitivity:  Recap  Globalisation of market and  Business level strategy internationalisation of business  Static and dynamic (interactive)  What is strategy and why strategy, strategies levels of strategy  Corporate level strategy  Strategy framework  Growth matrix, portfolio matrix  Layers of business environment  Growth methods  External analysis, industry and  Merger and acquisitions and sector analysis, competitors and strategic alliances markets  Internal analysis – resources and capabilities analysis  Organisational culture  Dynamic capabilities  SWOT 3 6EC513 Sensitivity:  Agenda for this week 4 6EC513 Sensitivity:  Strategy framework: the big picture Whittington et al., 2020, Ch1 5 6EC513 Sensitivity:  The big picture Please ignore the chapter numbers 6 6EC513 Sensitivity:  Agenda for this week  Entering and working in international markets  Drivers of internationalisation  Geographic sources of advantage  International strategies: global integration versus local responsiveness  Internationalisation mechanisms  Process and modes of internationalisation 7 6EC513 Sensitivity:  International strategy: five main themes Johnson et al., 2017, Ch9 8 6EC513 Sensitivity:  Main players in international business  Focal firm (lead firm)  MNEs including small and medium sized MNEs  Distribution channel intermediary  Facilitator 9 6EC513 Sensitivity:  Drivers of internationalisation Drivers for internationalisation Cavusgil et al., 2017, Ch14; Whittington et al., 2017, Ch9 10 6EC513 Sensitivity:  Geographic sources of advantage  A competitor entering a market from overseas typically starts with considerable disadvantages relative to existing local competitors, which will usually have superior knowledge of the local market and its institutions, established relationships with local customers, strong supply chains and the like  Food for thought: How is the chance of success when the focal firm is entering a new market with a new product/offering?  While firm- or organisation-specific advantages are important, competitive advantage in an international context also depends on country-specific or geographic advantages  Two principal opportunities available: the exploitation of particular locational advantages, often in the company’s home country, and sourcing advantages overseas via an international value system Johnson et al., 2017, Ch9 11 6EC513 Sensitivity:  Locational advantage: Porter’s Diamond Whittington et al., 2017, Ch9 12 6EC513 Sensitivity:  Locational advantages examples  Cost advantages  include labour costs, transportation and communications costs and taxation and investment incentives  IT → India, manufacturing → China  Unique local capabilities  may allow an organisation to enhance its competitive advantage  Biotech clusters in Europe  National market characteristics  can enable organisations to develop differentiated product offerings aimed at different market segments  Gibsone and Epiphone brands, Epiphone → made in South Korea, Gibson → made in USA 13 6EC513 Sensitivity:  Global sourcing  Purchasing services and components from the most appropriate suppliers around the world, regardless of their location  How ‘global’ should the sourcing be? Is there a need for a fine balance? 14 6EC513 Sensitivity:  The changing face of global sourcing? https://www.ft.com/content/86bf4c20-e95a https://www.ft.com/content/c072b4b8-afc https://www.ft.com/content/f098bf3f-1ec6- -4f8e-bd8d-b7bdee3bc3ba 3-4c48-b5fc-544d232b37f5 4433-b4e2-fc1acde05628 15 6EC513 Sensitivity:  International strategies: global integration versus local responsiveness  Global integration  encourage organisations to coordinate their activities across diverse countries to gain efficient operations  Local responsiveness  a greater need to disperse operations and adapt to local demand Whittington et al., 2017, Ch9 16 6EC513 Sensitivity:  Four international strategies (Bartlett–Ghoshal matrix) Whittington et al., 2017, Ch9 17 6EC513 Sensitivity:  Four international strategies (Bartlett–Ghoshal matrix) Whittington et al., 2017, Ch9 18 6EC513 Sensitivity:  Case studies and food for thought  How GE got out of the GE way to create the Nano of ECGs  https://economictimes.indiatimes.com/how-ge-got-out-of-the-ge-way-to-create-the-n ano-of-ecgs/articleshow/7673404.cms  How Unilever Reaches Rural Consumers in Emerging Markets  https://hbr.org/2016/12/how-unilever-reaches-rural-consumers-in-emerging-markets  How about? A very useful link: http://web.mit.edu/15.220/frameworks.pdf 19 6EC513 Sensitivity:  Internationalisation mechanisms Uppsala model Born global Gradual international presence ONE world, ONE market! ↑ Geographic diversification ↑ Market commitment 20 6EC513 Sensitivity:  The Uppsala Model (Internationalisation process theory)  Internationalisation takes place in incremental stages over a long period  Stages of internationalisation:  Psychic distance  Factors preventing or disturbing the flow of information between firm and market  Cultural, institutional and rarely geographical in nature  Preferred target of internationalisation is to internationalise to a low psychic distance country Cavusgil et al., 2017, Ch5 21 6EC513 Sensitivity:  The Uppsala Model (Internationalisation process theory)  The core of the model is the ‘experiential learning – commitment’ interplay  Experiential learning refers to the process of accumulating experiential market knowledge in foreign markets Cavusgil et al., 2017, Ch5 22 6EC513 Sensitivity:  Haier - strategic stages of internationalisation 23 6EC513 Sensitivity:  Born globals  Firms internationalise rapidly, mostly from inception  The competitive advantage is derived from resources and sale of outputs in multiple countries  Born globals have emerged in large numbers for two main reasons:  Globalisation has made doing international business easier than ever before  Advances in communication and transportation technologies have reduced the costs of operating internationally Cavusgil et al., 2017, Ch5 24 6EC513 Sensitivity:  Born globals  Mojang, maker of the Minecraft video game, is a born global  Minecraft sold 1 million games within one month of its launch to gamers worldwide  The first Minecraft convention was held in 2011 in Las Vegas, United States, and attended by 4,500 users from 24 countries  Mojang gamers are located in countries around the world Cavusgil et al., 2017, Ch5 25 6EC513 Sensitivity:  Gaining and sustaining competitive advantage through internationalisation  FDI–based explanation  Dunning’s eclectic paradigm (OLI paradigm)  Non–FDI–based explanation  Networks and relational assets  Represent the economically beneficial long-term relationships the firm undertakes with other business entities. Such entities include manufacturers, distributors, suppliers, retailers, consultants, banks, transportation suppliers, governments, and any other organization that can provide needed capabilities  Non–FDI based alliances (W5L) 26 6EC513 Sensitivity:  Dunning’s eclectic (OLI) paradigm (John H. Dunning, 1979)  Professor John Dunning proposed the eclectic paradigm as a framework for determining the extent and pattern of the value-chain operations that companies should own abroad  Dunning draws from various theoretical perspectives, including the comparative advantage and the factor proportions, monopolistic advantage, and internalization advantage theories  Key characteristics  Ownership-specific advantages  The firm owns knowledge, skills, capabilities, processes, or physical assets  Location-specific advantages  Factors in individual countries provide specific benefits, such as natural resources, skilled labour, low-cost labour, and inexpensive capital  Internalisation advantages  The firm benefits from internalising foreign manufacturing, distribution, or other value chain activities Cavusgil et al., 2017, Ch5 27 6EC513 Sensitivity:  OLI-factors Cavusgil et al., 2017, Ch5 https://www.youtube.com/watch?v=2wAi4GpF0eM 28 6EC513 Sensitivity:  Food for thought  Why in Shanghai and Berlin outside USA? 29 6EC513 Sensitivity:  Process and modes of internationalisation Cavusgil et al., 2017, Ch12; https://www.london.edu/think/born-global 30 6EC513 Sensitivity:  Types of FDI  Greenfield Investment versus M&As  Greenfield investment: direct investment to build a new manufacturing, marketing, or administrative facility as opposed to acquiring existing facilities (organic growth vs M&A, W5L)  The nature of ownership in FDI – equity versus non–equity  Vertical versus horizontal integration (W5L)  Vertical integration: the firm owns, or seeks to own, multiple stages of a value chain for producing, selling, and delivering a product or service.  Horizontal integration: the firm owns, or seeks to own, the activities performed in a single stage of its value chain Cavusgil et al., 2017, Ch15 31 6EC513 Sensitivity:  Factors to consider in selecting FDI locations Cavusgil et al., 2017, Ch14 32 6EC513 Sensitivity:  UNCTAD investment trend monitor 2023 https://unctad.org/publication/world-investment-report-2023 https://unctad.org/system/files/official-document/wir2023_overview_en.pdf 33 6EC513 Sensitivity:  Exporting Cavusgil et al., 2017, Ch13 34 6EC513 Sensitivity:  Licensing Cavusgil et al., 2017, Ch15 35 6EC513 Sensitivity:  Top 10 global licensors of 2024  The Walt Disney Company – $62B (E)  Authentic Brands Group – $28B (E)  Dotdash Meredith – $26.4B (E)  Warner Bros. Discovery – $15B  Hasbro – $14.1B (E)  NBCUniversal/Universal Products & Experiences – $11.5B  The Pokémon Company International – $10.8B  Bluestar Alliance – $8.5B (E)  Mattel – $8.5B (E)  WHP Global – $7.5B https://www.licenseglobal.com/rankings-lists/top-150-leading-licensors 36 6EC513 Sensitivity:  Franchising Cavusgil et al., 2017, Ch15 37 6EC513 Sensitivity:  Top global franchises ranking 2023 https://www.entrepreneur.com/franchises/directory/top-global-ranking 38 6EC513 Sensitivity:  Master franchise  Arrangement in which an independent company is licensed to establish, develop, and manage the entire franchising network in its market and has the right to sub-franchise to other franchisees, assuming the role of local franchisor Master franchise for In India, Sri Lanka, Bangladesh and Nepal Operates the brands KFC, Pizza Hut, Taco Bell, The Habit Burger Grill, and WingStreet worldwide, except in China, where the brands are operated by a separate company, Yum China Cavusgil et al., 2017, Ch15 39 6EC513 Sensitivity:  Other contractual entry strategies  Turnkey contracting  Arrangement in which the focal firm (or a consortium of firms) plans, finances, organises, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers  In Abu Dhabi, a collection of companies received a multibillion dollar contract to build an integrated processing plant for natural gas. The team included JGC of Japan, Tecnimont of Italy, and Hyundai Engineering & Construction of South Korea. HDEC has built industrial, infrastructure commercial, and multifamily residential projects in about 50 countries  Hochtief AG of Germany and Skanska AB of Sweden have undertaken some of the world’s most important infrastructure projects, such as the Three Gorges Dam in China and the Chunnel linking England to France Cavusgil et al., 2017, Ch15 40 6EC513 Sensitivity:  Other contractual entry strategies  Build-operate-transfer (BOT)  Arrangement in which the firm or a consortium of firms contracts to build a major facility abroad, operate it for a specified period, and then transfer control to the project sponsor, typically the host country government or public utility  Phu My 3 Vietnam: a model BOT Constructed by Siemens under a turnkey contract, Phu My 3 was officially inaugurated in April 2004 and will be operated by the Phu My 3 BOT Power Company for a period of 20 years. The Phu My 3 BOT Power Company is a consortium of BP, SembCorp Utilities of Singapore, Japan’s Kyushu Electric Power Co. and Sojitz Corp. (formerly Nissho Iwai Corporation). Cavusgil et al., 2017, Ch15 https://www.powerengineeringint.com/world-regions/asia/phu-my-3-a-model-bot/ https://ppp.worldbank.org/public-private-partnership/agreements/concessions-bots-dbos 41 6EC513 Sensitivity:  Comparison of entry mode strategies Johnson et al., 2017, Ch9 42 6EC513 Sensitivity:  Summary 43 6EC513 Sensitivity:  Next week 44 6EC513 Sensitivity:  References Book  Cavusgil, S., Knight, G. & Riesenberger, J. (2017). International business. 4th ed. Boston: Pearson.  Whittington, R., Regnér, P., Angwin, D., Johnson, G., Scholes, K., Evans, J. and Kerridge, C. (2021). Exploring strategy: Text and cases. Harlow, England: Pearson  Additional reading:  Roll, M. (2015). Asian brand strategy. Palgrave Macmillan. Free download: https://link.springer.com/content/pdf/10.1057%2F9781137359179.pdf Journal articles  Gereffi, G., Humphrey, J., Kaplinsky, R. and Sturgeon, T. J. (2001). Introduction: Globalisation, Value Chains and Development. IDS Bulletin, 32(3), pp.1-8.  Gereffi, G., Humphrey, J. and Sturgeon, T. (2005). The governance of global value chains. Review of International Political Economy, 12(1), pp.78–104.  Mudambi, R. (2008). Location, control and innovation in knowledge-intensive industries. Journal of Economic Geography, 8(5), pp.699-725.  Porter, M. (1991). Towards a dynamic theory of strategy. Strategic Management Journal, 12(S2), pp.95-117. 45 6EC513 Sensitivity:  Any questions? 46 6EC513 Sensitivity:  Thank you! 47 6EC513 Sensitivity: