MGCR 622 International Business Strategy PDF

Session 2 MGCR 622 International Business Strategy Where to locate Ghahhar Zavosh, Strategy & Organization Area October 2...

Session 2 MGCR 622 International Business Strategy Where to locate Ghahhar Zavosh, Strategy & Organization Area October 2024 McGill Desautels Faculty of Management  Outline – What we do today What is Strategy Different areas of Strategy Why do firms go abroad? Creating and capturing value Challenges of going abroad Generic strategies McGill Desautels Faculty of Management 2  What is strategy? McGill Desautels Faculty of Management  What is strategy? The determination of the long-run goals and objectives of an enterprise, the adoption of courses of action, and the allocation of resources necessary for carrying out these goals. Alfred Chandler ‘Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.’ ‘a pattern in a stream of decisions Michael Porter Henry Mintzberg ‘’the long-term direction of an organization’ Textbook https://www.youtube.com/watch?v=o7Ik1OB4TaE&ab_channel=HarvardBusinessReview McGill Desautels Faculty of Management  The levels of strategy Corporate-level strategy How value is added by the different businesses of the entire organization (Quest for Economies of Scope) Business-level strategy How individual businesses compete (Quest for Competitive Advantage) Operational-level strategy How functional components of an organization contribute to corporate- & business-level strategies in terms of resources, processes & people. (Quest for operational effectiveness) McGill Desautels Faculty of Management  Levels of strategy: How about Tesla? Corporate-level strategy Business-level strategy (or competitive strategy) Operational-level Tesla decided not to initiate patent lawsuit strategy anymore in 2014. McGill Desautels Faculty of Management  Business-level vs. Corporate-level strategy Business-unit level strategy (competitive) How can a firm create a competitive advantage? Corporate-level strategy (company-wide) What is the mix of businesses we should be in? How do we add value through this mix of businesses? McGill Desautels Faculty of Management  Corporate-level strategy In practice All firms have a corporate strategy, even single- line businesses The decision not to engage in other industries is important CEOs are often focused with corporate strategy: high-level decision on how should the corporate officer manage the group of businesses? Business Units McGill Desautels Faculty of Management  Potential Paths for Companies to diversify 1. Different industries 2. Geographies 3. Within Industry diversification McGill Desautels Faculty of Management  How international business context can help firms create and capture value McGill Desautels Faculty of Management 10  Why do firms go abroad? Strategies to create value globally What is the creating value? What is capturing value? McGill Desautels Faculty of Management 11  Value creation and appropriation along the vertical chain 1. How much value will all players together create? 2. What determines how much value each player will appropriate? Willingness to Pay Buyer’s Share Value Created Price Firm’s Share Cost Supplier’s Share Opportunity Cost McGill Desautels Faculty of Management 12  Price and Willingness to Pay (WTP)- Calculation of buyers’ Share Value Stick Framework Price Willingness to Pay The amount a firm charges customers for product / service Buyer’s Share Willingness to Pay (WTP) WTP is the maximum price a customer is willing to pay Value Created Price based on the perceived value they receive Firm’s Share Firms can increase WTP by improving product quality, customer experience, or offering unique features Cost Price vs. WTP Supplier’s Share Price > WTP: The potential customer does not buy the Opportunity Cost firm’s product / service Price < WTP: The potential customer buys the firm’s product / service and captures a non-zero value McGill Desautels Faculty of Management 13  Cost and Opportunity Cost of Resources (OCR)- Calculation of Suppliers’ Share Value Stick Framework Identify the resources used and the quantity of each resource Negotiated cost rate Vs. opportunity cost rate per unit of resource Willingness to Pay After using the below equations for each resource, add up all costs Buyer’s Share Value Created Price Negotiated Quantity of Cost Cost per unit Firm’s Share Resource of resource Cost Opportunity Supplier’s Share Opportunity Quantity of Cost per unit Cost Resource Opportunity Cost of resource McGill Desautels Faculty of Management 14 Generic strategies for Going Abroad Deployment Replication of competitive advantage from home country Mechanism of Creation of value is by aggregating demand Target Homogenous segments [needs] of market across regions standardization of services or products - Development - Deepening McGill Desautels Faculty of Management 15 Generic strategies for Going Abroad - Deployment Development Identifying where potential new capabilities resides Goal is to get integrated competitive advantage Knowledge arbitrage v/s other forms of arbitrage Locations should be “different enough” rather than “too different” - Deepening McGill Desautels Faculty of Management 16 Generic strategies for Going Abroad - Deployment - Development Deepening Widen competitive advantage, without changing primary business strategy Increase willingness to pay by adjusting to local tastes Decreasing costs by aggregation of demand Being internationally dispersed has value for stakeholders McGill Desautels Faculty of Management 17 Why Do Firms Go Abroad? Strategies to Create Value Globally Challenges in New Markets: Liability of being a foreigner Paradox of being consistent McGill Desautels Faculty of Management 18 Liabilities of Being a Foreigner Local laws favor domestic firms Import / Export costs Cultural differences Caps on foreign investment Separate time zones can be a liability Different contract structures McGill Desautels Faculty of Management 19 Paradox of being consistent Need for Market Adaptation Loss of Internal Consistency Dilution of Competitive Advantage Complex Decision-Making Risk of Strategic Misalignment “When combined, the liability of being a foreigner and the paradox of being consistent can prevent even the most successful domestic firm from fully duplicating its home-market success abroad.” McGill Desautels Faculty of Management 20 A Few Examples Challenges faced by foreign firms due to regulatory and cultural differences Example 1: Google in China Faced restrictive regulations (Great Firewall) compliance challenges and reputational risks Competed against local firms like Baidu – already compliant Pulled out in 2010 due to compliance and reputational risks McGill Desautels Faculty of Management 21 A Few Examples Challenges faced by foreign firms due to regulatory and cultural differences Example 2: Walmart Germany Struggled with cultural differences and regulatory constraints German labor laws and unionized workforces Strong local competitors (Aldi, Lidl) Exited market in 2006 McGill Desautels Faculty of Management 22 A Few Examples Challenges faced by foreign firms due to regulatory and cultural differences Example 3: Starbucks in China- Adapted menu to local coffee preferences Created a culturally resonant in-store experience Navigated complex food safety regulations Competed with local brands (e.g., Luckin Coffee) and established foreign brands (e.g., Costa) Continuously adjusted strategies to stay relevant in the market McGill Desautels Faculty of Management 23 APPENDIX McGill Desautels Faculty of Management How can companies overcome them McGill Desautels Faculty of Management 25