Business Strategy 2024/2025 PDF

BUSINESS STRATEGY Sandra RAMOS 2024/2025 STRATEGIC CHOICES INTERNATIONAL STRATEGY INTRODUCTION Specific but important kind of market development: operating in different geographical markets. Large traditional multinationals: Nestle, MacDonald's, Toyota....

BUSINESS STRATEGY Sandra RAMOS 2024/2025 STRATEGIC CHOICES INTERNATIONAL STRATEGY INTRODUCTION Specific but important kind of market development: operating in different geographical markets. Large traditional multinationals: Nestle, MacDonald's, Toyota. Rise of new small firms, like internet-based start-ups. Not-for-profit organisations: Red Cross, Doctors without Borders. 3  INTRODUCTION 4 INTERNATIONALISATION DRIVERS INTRODUCTION Favourable environment to internationalisation: Lower barriers to trade and investment than before. Better international legal frameworks, which mean less risk. Improvements in communications – from cheaper air travel to internet – make movement and spread of ideas much easier. INTRODUCTION Unfavourable environment to internationalisation: Trade barriers still exist for some products (e.g. defence technologies). Many countries protect their leading companies from takeover by overseas rivals. Markets vary widely in the extent to which consumer needs are standardising. Some multinationals are in fact concentrated in very particular markets (South America, Western Europe). 7 Drivers of internationalisation 8 GEOGRAPHIC SOURCES OF ADVANTAGES INTRODUCTION A competitor entering a market from overseas typically starts with considerable disadvantages relative to existing local competitors. They have superior knowledge of the local market and its institutions, established relationships with local customers, strong supply chains and the like. A foreign entrant must have significant firm-specific competitive advantages for it to overcome these inherent advantages of local competitors. E.g. Tesco in USA. LOCATIONAL ADVANTAGE: PORTER’S DIAMOND Countries and regions within them, and organisations originating in those, often benefit from competitive advantages grounded in specific local conditions. They become associated with specific types of enduring competitive advantage: E.g. The Swiss in private banking. Northern Italians in leather and fur fashion goods. Taiwanese in laptop computers. 11 Porter’s Diamond suggests that locational advantages may stem from local factor conditions (see image) PORTER’S DIAMOND 12 THE INTERNATIONAL VALUE SYSTEM For companies with most of their sales abroad, the configuration of the international environments where they operate is at least as important as their domestic environment. This implies that for international companies, advantage also needs to be drawn from the international configuration of their value system. Here the different skills, resources and costs of countries around the world can be systematically exploited in order to locate each element of the value chain in that country or region where it can be conducted most effectively and efficiently. 13 THE INTERNATIONAL VALUE SYSTEM Global sourcing: purchasing services and components from the most appropriate suppliers around the world, regardless of their location. Various advantages: 1. Cost advantage (labour, transportation, communications, taxation, etc...) 2. Unique local capabilities. 3. National market characteristics. 14 INTERNATIONAL STRATEGIES INTERNATIONAL STRATEGIES Core challenge in formulating an international strategy is to balance pressures for global integration versus those for local responsiveness. Global integration: Standardisation of products and service across various markets. Need to concentrate and coordinate operations globally (centralisation). Local responsiveness: Adaptation to local markets due to differences in customer preferences, regulations, cultures, etc... Need to disperse operations and adapt to local demand (decentralisation). INTERNATIONAL STRATEGIES Global-local dilemma: the extent to which products and services may be standardised across national boundaries or need to be adapted to meet the requirements of specific national markets. E.g. TV market: appear similar across the world, offering huge potential scale economies if design, production and delivery can be centralised. Processed-food market: tastes still seem highly national-specific, drawing companies to decentralise operations and control as near as possible to the local market. 17 Four international strategies INTERNATIONAL STRATEGIES EXPORT STRATEGY Also called international strategy. Companies distribute locally sourced products with minimal adaptation to foreign markets. Companies centralise production and operations in the domestic market. Companies that have distinctive capabilities together with strong reputation and brand names often follow this strategy with success. Downside: it is the limits of a home country centralised view of the business with risks of skilled local competitors getting ahead. E.g. Bugatti; Boeing 19 MULTI-DOMESTIC STRATEGY It is based on different product or service offerings and operations in each country depending on local market conditions and customer preferences. Each country is treated differently with considerable autonomy for each country manager to best meet the needs of local markets and customers (various independent subsidiaries; decentralised operations). The organisation becomes a collection of relatively independent units with value chain activities adapted to specific local conditions. 20 MULTI-DOMESTIC STRATEGY It is particularly appropriate when there are strong benefits to adapting to local needs and when there are limited efficiency gains from integration. It is common in food and consumer product industries where local idiosyncratic preferences are significant. Marketing-driven companies often pursue this type of strategy. E.g. Frito-Lay; Nestle. 21 MULTI-DOMESTIC STRATEGY Disadvantages: Manufacturing inefficiencies, a proliferation of costly product and service variations and risks towards brand and reputation if national practices become too diverse. 22 GLOBAL STRATEGY Maximises global integration by approaching the world as a single market with standardised products and services. Focuses on economies of scale and locational efficiency, with operations coordinated centrally from headquarters. Best suited when cost or quality efficiencies are gained from standardisation and when customer needs are similar across countries. 23 GLOBAL STRATEGY Common in industries with commodity-like products (e.g., Cemex in cement) but also used by non-commodity companies like IKEA. Drawback: Reduced flexibility due to limited local adaptation, though minor adjustments may still be made to meet local preferences (e.g., IKEA’s product modifications). 24 TRANSNATIONAL STRATEGY Combines global integration and local responsiveness, aiming to balance efficiency with adaptation to local markets. Focuses on learning and knowledge exchange across units in different countries, leveraging innovation from any location. Involves a mix of centralised manufacturing for efficiency and localised assembly and adaptation for responsiveness. The value chain configuration includes an intricate combination of centralised manufacturing to increase efficiency combined with distributed assembly and local adaptations. 25 TRANSNATIONAL STRATEGY Coordination is not centralised at home nor dispersed in foreign countries, but encourages global knowledge flows. Advantages: Supports both global efficiency and local market needs while fostering cross-border learning. Challenges: Difficult to implement due to complexity; balancing integration and responsiveness can be tough E.g. ABB and General Electric. 26 INTERNATIONAL STRATEGIES These four international strategies are not absolutely distinct as indicated by the overlapping ovals in figure (slide 14). They are rather illustrative examples of alternative international strategies. Global integration and local responsiveness are matters of degree rather than sharp distinctions. Choices between them will be influenced by changes in the internationalisation drivers introduced earlier. It is rare that companies adopt a pure form of international strategy; instead they often blend approaches and are located somewhere between the four strategies. 27 INTERNATIONAL STRATEGIES Regional strategies. Aims at attaining some of the economic efficiency and location advantages while simultaneously reaching local adaptation advantages. Regions are treated as relatively homogenous markets with value chain activities concentrated within them. E.g. European Union, North American Free Trade. 28 MARKET SELECTION AND ENTRY COUNTRY AND MARKET CHARACTERISTICS An attractive industry in the home market can be unattractive in another country. Frameworks in comparing countries for entry: PESTEL CAGE framework 30 CAGE DISTANCE FRAMEWORK Source: https://www.consuunt.com/cage- distance-framework/ COUNTRY AND MARKET CHARACTERISTICS 31 COMPETITIVE CHARACTERISTICS Country markets can be assessed according to three criteria: 1. Market attractiveness: PESTEL, CAGE framework, Five forces of Porter. 2. Defender’s reactiveness. 3. Defender’s clout. 32 ENTRY MODE STRATEGIES Four entry mode strategies: 1. Exporting. 2. Contractual arrangements through licensing or franchising to local partners. 3. Joint ventures with local companies, in other words the establishment of jointly owned business. 4. Whole owned subsidiaries, through either acquisition of established companies or ‘Greenfields’ investments. 33  Comparison of entry mode strategies ENTRY MODE STRATEGIES 34 HANDBOOK Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2017). Exploring Strategy - Text and Cases (11th ed.). Pearson Education. 35