MG4031 Week 04 Lecture 02 PDF

MG4031 Wk.04 Lec.02 Entering Business Environments: International expansion is a far more complex task than simply replicating an existing national strategy and enlarging an existing structure. The decision to expand can be proactive (an opportunity is identified) or reactive (there is a deteriora...

MG4031 Wk.04 Lec.02 Entering Business Environments: International expansion is a far more complex task than simply replicating an existing national strategy and enlarging an existing structure. The decision to expand can be proactive (an opportunity is identified) or reactive (there is a deterioration of the firm’s competitive position). Location: Legal and political environments need to be considered, as well the how receptive the area is the FDI. Market conditions, production costs, taxes, and labour market (especially wages) also need to be considered. Timing: This is often in relation to any move in overseas competitors. First movers often enjoy advantages as a result of their early entry but are also exposed to more environmental uncertainty and risks. Advantages: Disadvantages: Potential to build and sustain a strong Very risky with no guarantee of market share success Little international competition Significant environmental uncertainty Opportunity to develop customer Expense loyalty Possible lack of protection for Economies of scale intellectual property Creation of barriers to entry for Need to move quickly followers Free rider effects Better adapted to handle later competition There are also second movers who can learn from the first’s mistakes. Entry Mode: Divided into non-equity and equity modes: o Direct Exporting (Non-Equity): Producing a product in a domestic market and then selling it to another country. It increases revenue but can have high transport and taxation costs. Indirect exporting is outsourcing the exporting function to intermediaries. o Franchising (Non-Equity): Agreeing to produce a product/service under a special agreement using the original organisation’s name, trademarks and technology, while paying a fee. o Licensing (Non-Equity): an outsourcing arrangement where the production of goods subject to patent, brand or other intellectual property rights is contracted out to another firm under terms and conditions agreed with the owner.  o Equity Joint-Venture: Sharing of the costs, resources, risks and rewards, each partner retaining its own legal identity. o Wholly Owned Subsidiary (WOS) (Equity): This can be by creating a new facility or by acquiring another existing one. Macroenvironment (PEST analysis): The Political/Legal Context: This is shaped by national and international governments. National governments effect business through policies on industry development, tax incentives and expansion schemes. International governments policies on international trade also effect businesses. There are 3 main types of legal systems: 1. Common Law: An independent judiciary is the basis of law, which relies on case precedents. (UK, USA, Ireland) 2. Civil Law: Relies on a legal code that is applied universally. (Mainland EU) 3. Theocratic Law: Based on an accepted religious code. (Iran, Saudi Arabia) Contracts/rights may not be worth anything in some countries, for example, IP rights globally. There are two main political risks for businesses: 1. Expropriation Risk: That the host government could seize the firm’s assets. 2. Policy Risk: The host government could discriminatorily change the laws, regulations or contracts governing an investment. The Economic Context: This is shaped by the general state of individual economies (recession/boom) and by economic policies by governments impacting inflation, wages and interest rates. The Technological Context: This creates new products/services, production techniques, and new ways of communicating and managing information and knowledge flow. E- Business. The Social-Ethical Context: Demographics, attitudes and behaviours effect business in terms of consumers and employees. Ethics and corporate social responsibility are becoming more important recently. Most businesses have a Code of Ethics. Competitive Environment: A firm generally tries to secure its competitive advantage on one of the following bases: Cost Leadership Strategy: Lower costs to be more competitive Differentiation Strategy: Offering a superior product/service, not necessarily just by price  Focus Strategy: Attempting to target specific niche markets to develop a competitive advantage Porter’s 5 forces effecting market competition: References: Notes based on MG4031 Lecture Slides and Modern Management: Theory and Practice for Students in Ireland (5th Ed.) - Tiernan S. and Morley, M.J. Chapter 3. Image 1: business-to-you.com