Title: Company Name
1INTERNATIONAL STRATEGY CREATING VALUE IN GLOBAL
MARKETS
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2INTERNATIONAL STRATEGY
Overview of the Global Economy
- Globalization
- The increase in international exchange, including
trade in goods and services as well as exchange
of money, information, ideas, and information. - The growing similarity of laws, rules, norms,
values, and ideas across countries.
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3INTERNATIONAL STRATEGY
Overview of the Global Economy
- Extremes in the effects of global capitalism
- The economies of East Asia have attained rapid
growth and improved standards of living - Income in Latin America grew by only 6 percent in
the past two decades - Average incomes in sub-Saharan Africa and the old
Eastern European bloc have actually declined
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4INTERNATIONAL STRATEGY
Porters Diamond of National Advantage
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5INTERNATIONAL STRATEGY
Global Factors Affecting
a
Nations Competitiveness
- Factor Endowments
- The nations position in factors of production,
such as skilled labor or infrastructure,
necessary to compete in a given industry. - Demand Conditions
- The nature of home-market demand for the
industrys product or service.
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6INTERNATIONAL STRATEGY
Global Factors Affecting
a
Nations Competitiveness
- Related and Supporting Industries
- The presence or absence in the nation of supplier
industries and other related industries that are
internationally competitive. - Firm Strategy, Structure, and Rivalry
- The conditions in the nation governing how
companies are created, organized, and managed, as
well as the nature of domestic rivalry.
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7INTERNATIONAL STRATEGY
Factor Endowments
- To achieve competitive advantage, factors of
production must be created - Industry and Firm specific
- The pool of resources at a firms or countrys
disposal is less important than the speed and
efficiency with which the resources are deployed - Firm-specific knowledge and skills created within
a country that are rare, valuable, difficult to
imitate and rapidly and efficiently deployed are
the factors that create national competitive
advantage
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8INTERNATIONAL STRATEGY
Demand Conditions
- The demands that consumers place on an industry
for goods and services - Demanding consumers drive firms in a country to
- Meet high standards
- Upgrade existing products and services
- Create innovative products and services
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9INTERNATIONAL STRATEGY
Related and Supporting Industries
- Enable firms to manage inputs more effectively
- Allow joint efforts among firms
- Share technical capabilities and infrastructure
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10INTERNATIONAL STRATEGY
Firm Strategy, Structure and Rivalry
- Rivalry is intense in nations with conditions of
- Strong consumer demand
- Strong supplier bases
- High new entrant potential from related
industries - Competitive rivalry stimulates innovation and new
means of achieving competitive advantage
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11INTERNATIONAL STRATEGY
Firm Strategy, Structure and Rivalry
- Competitive rivalry increases the efficiency with
which firms - Develop within the home country
- Market within the home country
- Distribute products and services within the home
country - Firms faced with intense domestic competitive
rivalry will often develop business strategies
and structures allowing them to compete outside
their domestic markets
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12INTERNATIONAL STRATEGY
Porters Diamond of National Advantage Applied
to India
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13INTERNATIONAL STRATEGY
Motivation for Companies to
Expand Internationally
- Increase the size of potential markets
- Attain economies of scale
- Take advantage of arbitrage opportunities
- Extend the life cycle of a product
- Optimize the physical location for every activity
in its value chain
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14INTERNATIONAL STRATEGY
Motivation for Companies to
Expand Internationally
- Optimizing the location for every activity in a
firms value chain can result in - Performance Enhancement
- Cost Reduction
- Risk Reduction
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15INTERNATIONAL STRATEGY
Potential Risks of International Expansion
- Political and Economic Risk
- Social unrest
- Military turmoil
- Demonstrations
- Violent conflicts and terrorism
- Laws and their enforcement
- Unstable governments
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16INTERNATIONAL STRATEGY
International Risk Rankings
Source Transparency International, 2010
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17INTERNATIONAL STRATEGY
Corruption Perceptions Index (CPI)
- The Transparency International 2010 CPI ranks the
most corrupt countries in the world - The scores range from ten (least corrupt) to zero
(highly corrupt) - The five most corrupt countries are
- Somalia (CPI Score 1.1)
- Myanmar (CPI Score 1.4)
- Afghanistan (CPI Score 1.4)
- Iraq (CPI Score 1.5)
- Uzbekistan (CPI Score 1.6)
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18INTERNATIONAL STRATEGY
International Risk Rankings
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19INTERNATIONAL STRATEGY
Potential Risks of International Expansion
- Currency Risk
- Currency exchange fluctuations
- Appreciation (strengthening) of the US Dollar
- Government management of monetary policy and
intervention in financial markets
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Potential Risks of International Expansion
- Management Risks
- Different culture
- Different customs
- Different language
- Different income levels / standard of living
- Country-specific customer preferences
- Less developed distribution system /
infrastructure
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21INTERNATIONAL STRATEGY
Global Dispersion of Value Chains
- Outsourcing
- Utilizing firms in other countries to perform
value-creating activities that were previously
performed in-house within the firms home country
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22INTERNATIONAL STRATEGY
Global Dispersion of Value Chains
- Offshoring
- Shifting an activity that was previously
performed in a domestic location to a foreign
location.
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23INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- Distinct global strategies emerge from the
opposing pressures of Reducing Costs and Adapting
to Local Markets - Lowering unit costs maintains competitiveness in
pricing in global markets - May require locating facilities where a cost
advantage can be achieved - Adapting to local markets requires modifying
product attributes to satisfy varying consumer
preferences in different countries - May add costs to differentiate products
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24INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
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25INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- International Strategy
- Based on diffusion and adaptation of the parent
companys knowledge and expertise to foreign
markets - The primary goal of the strategy is worldwide
exploitation of the parent firms knowledge and
capabilities that foreign competitors lack - Low degree of global adaptation
- Core competencies associated with centralized
headquarters location - Low pressures for local adaptation and lowering
costs
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26INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- International Strategy Strengths / Limitations
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27INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- Global Strategy
- Competitive strategy is centralized and
controlled largely by corporate administration - Emphasizes achievement of economies of scale to
lower global costs - Pressure for adaptation is low and pressure for
lowering costs is high
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28INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- Global Strategy Strengths / Limitations
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Achieving Competitive Advantage
in Global Markets
- Multidomestic Strategy
- Emphasis is differentiating products and services
to adapt to local markets - Decision-making is more decentralized
- Pressure for local adaptation is high and
pressure for lowering costs is low
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30INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- Multidomestic Strategy Strengths / Limitations
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31INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- Transnational Strategy
- Optimization of tradeoffs associated with
efficiency, local adaptation, and learning - Firms assets and capabilities are dispersed
according to the most beneficial location for a
specific activity - Pressures for both local adaptation and lowering
costs is high
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32INTERNATIONAL STRATEGY
Achieving Competitive Advantage
in Global Markets
- Transnational Strategy Strengths / Limitations
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33INTERNATIONAL STRATEGY
Global vs. Regional Expansion
- Advantages of regional vs. global expansion
- Geographic proximity
- Cultural, language, customer preference
similarities - Linked infrastructure and distribution
- Favorable trading relationships
- Most companies are involved in regional or
bi-regional expansion, not global expansion
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34INTERNATIONAL STRATEGY
Entry Modes of International Expansion
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35INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Exporting
- Producing goods in one country to sell to
residents of another country
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36INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Exporting Benefits
- Simplest way to enter a market with least
investment risk - Foreign distribution partners facilitate entry
- Exporting Risks / Limitations
- Little control over local distribution practices
- Potential competition with other distributor
products
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37INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Licensing / Franchising
- Contractual agreement in which a company receives
a royalty or fee in exchange for the right to use
its intellectual property - Restrictions on use of intellectual property are
part of any licensing or franchising agreement
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38INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Licensing or Franchising Benefits
- Low investment risk
- Avoid trade barriers and currency risk exposure
- Licensing or Franchising Risks / Limitations
- Loss of control
- Lower profits due to royalty / fees paid to
licensee - Intellectual property rights potentially at risk
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Entry Modes of International Expansion
- Strategic Alliances and Joint Ventures
- Partnership arrangements with foreign firms or
other multinationals - Strategic alliances usually are limited to
resource sharing arrangements, marketing and
distribution - Joint Ventures involve the creation of a
third-party enterprise with joint ownership
and/or shared assets
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Entry Modes of International Expansion
- Strategic Alliances and Joint Ventures -Benefits
- Shared risks with less investment than
wholly-owned subsidiaries - Gain market or technical knowledge and operating
expertise from partners - Shared revenues and profits
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41INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Strategic Alliances and Joint Ventures -
Risks / Limitations - Success usually requires the following
- Defined strategy that is mutually acceptable
- Defined responsibilities and contributions
- Mutual trust
- Unifying common culture
- Detailed procedures and documentation defining
all aspects of the partnership arrangement
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Entry Modes of International Expansion
- Wholly Owned Subsidiaries
- A business in which a multinational company owns
100 percent of the stock.
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43INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Wholly Owned Subsidiaries - Benefits
- Provides greatest degree of control of all
company activities - Highest investment cost and risk but can lead
to highest returns - No revenue or profit sharing
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44INTERNATIONAL STRATEGY
Entry Modes of International Expansion
- Wholly Owned Subsidiaries
Risks / Limitations - Highest investment risk assumed entirely by
parent company - Must go through learning curve relating to
cultural, political and legal environment in the
host country
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45INTERNATIONAL STRATEGY
Case Analysis Marketing to the Bottom of the
Pyramid
- For years, companies focused on the upper portion
of the income pyramid to market products - Recently, more companies have found success
marketing to the poorer populations of developing
countries - Micro Loans have become an industry in itself,
catering to low income families wishing to start
businesses - Some companies, like Unilever, have modified
packaging and item quantity marketed to low
income customers to meet the restrictions of
their standards of living
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46INTERNATIONAL STRATEGY
Case Analysis India and the Diamond of National
Advantage
- Over one-fifth of Fortune 1000 companies
outsource their software requirements to Indian
firms - Indian software exports have increased from 5.9
billion in 2000 to a projected 80 billion in
2010 - The Indian software industry has grown at a 25
annual rate over the past decade - More than 800 firms in India are involved in
software services as their primary activity
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Case Analysis India and the Diamond of National
Advantage
- Software and IT firms in India are projected to
employ 2.3 million people by 2010 - The IT sector is expected to contribute 7 of
Indias GDP in 2010 - India has focused on educating students in IT to
provide the labor resources necessary to staff
this industry - Global demand conditions for software continue to
increase as more developed countries rely more
heavily on complex software systems to increase
efficiency - India now has both the supplier base and
competitive advantage against rivals in the
software development industry
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48INTERNATIONAL STRATEGY
Case Analysis India and the Diamond of National
Advantage
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49INTERNATIONAL STRATEGY
Case Analysis How Wal-Mart Profits from
Arbitrage
- Wal-Marts above-average profitability has been
attributed to factors such as superior logistics,
strict overhead control, and effective use of
information systems - Wal-Mart is aggressively pursuing international
expansion across the globe - Another key factor in Wal-Marts success has been
its ability to purchase large volumes of goods at
very cheap prices, sourcing more and more from
foreign countries such as China - It is estimated that China alone may be supplying
between 50 - 70 billion annually, generating
savings of 16 - 23 billion annually
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Case Analysis How Deere Co. Learned From its
Indian Operations
- In an attempt to enter the Indian agricultural
market for farm equipment, Deere engineered small
no-frills tractors for he Indian market - Deere didnt consider these basic tractors would
appeal to US customers when it first introduced
them to India - Ironically, Indian manufacturer Mahindra was
beginning to market small, basic tractors to US
consumers needing basic features for their
personal properties - Deere has introduced slightly modified versions
of its Indian tractor design for use in the US,
with great success
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