9.3 Assessing internalisation (includes Bartlett & Ghoshal matrix) Flashcards
1
Q
What is internationalisation/ globalisation?
(Pages 246 & 247)
A
Countries are becoming more linked through markets & production.
There is an increasing mobility of resources including flows of money, goods & services around the world.
2
Q
Why is globalisation/ internationalisation important for managers?
A
- They need a broader vision than in the past.
- They have more markets in which to recruit, a greater cultural diversity in their workforce, a broader customer base & more market opportunities around the world.
- They also have more potential threats & face more competitive markets now that there are fewer barriers to trade globally.
3
Q
What has caused greater internationalisation?
A
- Trade agreements.
- Improvements in transport.
- Improvements in communications technology.
4
Q
Trade agreements
What does this enable?
A
Trade enables businesses in one country to focus on producing the goods & services which they are good at (comparative advantage) & buy in the items that can be produced efficiently aborad.
5
Q
Trade agreements
What should this enable for the country & consumers?
A
- The country & consumes as a whole benefit from a wider range of products than it could produce domestically.
- Consumers should benefit from better value for money- as items can be purchased from the best & most efficient producers around the world.
- Producers equally have access to the best suppliers in the world.
6
Q
What is free trade?
A
Occurs when there is trade between countries without barriers such as tariffs & quotas.
7
Q
What is a tariff?
A
A tax placed on foreign goods & services.
8
Q
What is a quota?
A
A limit on the number of imported goods & services.
9
Q
What is a customs union?
A
Occurs when there is free trade between member countries but an agreed tariff on non-members.
10
Q
What do worldwide government organisations such as the World Trade Organisation exist to do?
A
- Exist to encourage governments to have more free trade.
- There have been many numerous trade agreements -either establishing/ extending areas in which there is free trade between member countries so businesses can easily produce/ sell there.
- This means they remove the taxes of foreign goods (tariffs) or limit the amount of foreign goods that can be imported into the country.
11
Q
Why does not everyone favour free trade?
A
- Particular domestic industries can’t compete effectively globally- more openeness may lead to closure & redundancies.
- Producers- that are worried about their competitiveness may try to put pressure on governments to protect them.
- Some businesses may prefer for their country to be free to make its own trading policy rather than be part of the organisation & follow rules.
12
Q
What has made it easier for businesss to operate around the world?
A
Technology- particularly information & communications technology
13
Q
What have developments in technology and communications brought for businesses?
A
- The price of international phone calls has fallen dramatically- allowing communications with overseas offices & staff affordable.
- It is now possible to pass huge pieces of data required to run a business around the world closer to each other in terms of what they watch, read & listen to.
- The internet, newspapers, radio and Tv are making people more similar in their tastes, creating global markets.
14
Q
Transportation costs
What has happened to them & what was one of the biggest breakthroughs?
A
- Transportation costs have fallen dramatically.
- It is now much cheaper to move items by air/ sea.
- One of the major breakthroughs = the development of containerisation.
15
Q
Transportation costs
What does containerisation do?
A
Through standardising the size & design of containers, they can be fully loaded, quickly lifted off or onto a lorry, put onto a boat & stacked efficiently.
This will massively reduce unit costs!
16
Q
Greater internationalisation & the opening of borders create opportunities for businesses in relation to what?
A
Selling products abroad.
Buying inputs from abroad.
Producing abroad.
17
Q
Selling in overseas markets
Why may it be attractive to sell abroad?
A
A larger population- so larger consumer base- higher sales- fast growth (particularly in emerging economies).
The opportunity to reduce risk- By spreading sales more globally, if sales in one market fall, they may be compensated by rising sales elsewhere.
18
Q
Using Andoffs matrix, what would entering an international market be an example of?
A
- Market development if the products are essentially the same as those being offered in domestic markets OR diversification if the products are new.
- Both these strategies involve the risk of entering a new market but help spread risk at the same time by operating in new areas.
19
Q
What are the methods of entering international markets?
A
Exporting
Licensing
Alliances/ ventures
Direct investment
20
Q
What is exporting?
A
- Occurs when a business continues producing domestically but sells (exports) some of its products abroad.
- Relatively low risk & involves a low level commitment to overseas sales in terms of finance & management times.*
21
Q
What is licensing?
A
- When a business sells the right to an overseas business to produce/ sell its products.
This provides the business with a local presence. Can provide valuable insights into the business environment of the country & provide networks & market links.
22
Q
What are alliances/ ventures?
A
- Occur when a domestic business works in a partnership with an overseas business- perhaps share the investment & risk together in terms of building a brand & market presence.
- This gives the UK business access to local expertise & contacts & shares the risk, but doesn’t involve sharing the profits too.
23
Q
What is direct investment?
A
- Involves the greatest level of commitment from the domestic business.
- Involves investing overseas- perhaps to establish outlets/ production facilities.
- Requires relatively high funds & a high-risk decision.
- When a business has its own operations abroad- is called a miltinational.
24
Q
What are mulinational companies?
A
Organisations that have production bases in more than one country.
25
Why are multinational businesses welcomed by overseas governments?
* Bring skills & expertise.
* Bring employment.
* Bring investment.
* Increase demand for local goods & services.
* Increase tax revenue.
26
Why have **multinational companies** been criticised?
* **Exploiting** local resources & not sharing the rewards of the business with the local economy.
* Keeping **senior jobs for their staff** & employing **local employees** for **low-level jobs**.
* **Keeping** the **majority of the profits** for their own head office & **not investing locally.**
* Finding ways to **avoid paying high levels** of **tax.**
* Being involved in **corruption** to **win contracts**.
27
Why is being international good for the business iself?
* Gives it direct access to local markets- may help it to overcome trade barriers against 'foreign businesses' as operated within the country.
* Means production is closer to local customers- may improve the speed of responses- cut transporting costs- fit with desire to buy locally produced products.
* May involve subsidies & tax incentives from the local gov which is eager for this investment- can reduce costs.
* Spreads risks of being independent on one country /one production base by having more than one around the world. If there is natural disaster in one -another may still be able to produce. If demand in one fell- may still be growth in another market.
28
What may the difficulties of being a multinational business be for the business?
* Bring **management challenges**- may be more complex to manage a business with base in different countries.
* **Practical issues** of **communication** & issues such as cultural differences, differences in labour markets, government regulations & ways of doing business.
* Bring criticism from some groups if the business is said to be abusing its power in any way/ if there is pressure to buy local brands not global ones.
29
What factors must be considered when a business decides which markets to target abroad?
* The **size & growth** of the market
* The **expected costs** of entering the market.
* The **macro environment**- PEST-C analysis
* How **culturally similar** the country is to the UK
* The degree of **competition**
* The **perceived risk** involved.
* The fit with the **overall strategy** of the business & its competences.
* The extent to which the business has to be **adapted** for **local requirements.**
* The **impact** on the business of **overseas growth.**
30
Why may businesses want to produce abroad?
(page 543)
* It **costs less.**
* It may be **nearer** to **resources.**
* It may be **more efficient** to produce locally in overseas markets & sell there.
* There may be **particular skills/ expertise** in a given area.
* It may **overcome barriers to trade.**
31
What is outsourcing?
If production is moved abroad.
32
What is re-shoring?
Occurs when a business **moves** its **production** to the **domestic country**.
33
Why may **re-shoring** take place?
* **Problems maintaining quality** abroad.
* **Problems** with **delivery** from overseas. Local production may be more flexible to demand.
* A **fall** in the **cost differential**. E.g. if wages overseas rise faster than domestically.
* A desire to be seen to **support domestic production** & **create jobs locally**.
34
What are the influences to produce or sell abroad?
(page 543)
* **The pressure for growth.** *(E.g. from investors- if fast growth is required- it may be the domestic market doesn't offer enough overseas opportunities & overseas expansion = key!)*
* **The pressure for lower costs** *(managers may be forced to search gloablly for the lowest cost resources/ production sites.)*
* **Location** *(Need to be closer to overseas markets may affect location decisions.)*
* **The availability of suitable resources locally** *(may be necessary to source inputs overseas if not available locally)*
* **Politics/economics** *(Political & economic situation may affect the ease with which business can be undertaken overseas.)*
35
What may businesses consider when considering entering international markets?
* **Extent** to which **local markets differ** in terms of **customer requirements.**
* **Costs** of **adapting products** to local needs
* **Economies of scale** from standardising products and selling the same products all around the world
* The **ease of managing the business** centrally from one location
36
What can the strategic options open to managers be shown using?
What two factors?
**Bartlett & Ghoshal (1991) matrix**
In this matrix- the choice of strategy can be analysed in relation to two factors-
* The **pressures** for **local responsiveness**
* The **extent** to which the business wants to be **globally integrated.**
37
Bartlett & Ghoshal (1991) matrix
The **pressure for local responsiveness**- what is this?
The extent to which local tastes differ & the need to adapt products as a result.
38
Bartlett & Ghoshal (1991) matrix
**The extent to which the business wants to be globally integrated-** what is this?
Where all the international units are working together within the overall whole- or less integrated where they operate more independently.
39
Bartlett & Ghoshal (1991) matrix
What are the 4 strategic options on the matrix?
International
Multi-domestic
Global
Transnational
40
Bartlett & Ghoshal (1991) matrix
Strategic option- **International**
What does this mean?
* The business is mainly focused on its **domestic operations.**
* **Products** are **not adapted** for the international market; the existing prodcts are simply sold abroad.
* This means the **products** are **not responsive** to local markets.
* **International** business **less important** than **domestic** business
* Products are **designed** for the **domestic market** & **international market** is seen mainly as a way to **boost sales**
41
Bartlett & Ghoshal (1991) matrix
Strategic option- **Multi-domestic**
What does this mean?
* **Different parts** of the business **operate** **fairly independently** in their **own regions**.
* Overall business- a **collection separate units** that **operate alone**.
* Each one **adapts** to its **local environment-** terms of what it **offers** & how is **run- decentralised structure.**
* **Each region** essentially **runs itself**- so overall organisation is a **collection of different local businesses** (multi-domestic)
* Disadvantage of approach- **resources are not shared** between the seperate companies.
42
Bartlett & Ghoshal (1991) matrix
Strategic option- **Global**
What does this mean?
* Products- **fairly standardized** around the world.
* Common in industries where the **product does not need to change** in **different markets.**
* Business is integrated in that it **follows similar policies & approaches** wherever it **operates.**
* In a global business- the ways of doing things- set by head office- so business is very centralised.
* Can lead to **economic of scale** & **management efficiencies**.
* Business- is **run from the centre** with **overseas operations** as **'satellites'**- implementing head office policies- business is integrated from the head office.
43
Bartlett & Ghoshal (1991) matrix
Strategic option- **Transnational**
What does this mean?
* Approach- aims to **maximise responsiveness** & **integration** across **all divisions** around the world.
* Products- **adapted to meet the needs** of **local markets** & **respond** to their **different needs**.
* **Business** is **very integrated**- shares ideas, technology, resources & discuss different ways of doing things.
* **Transnational**- is **not dominated by a domestic head office** setting out what everyone does- it gives more input to businesses around the world to collaborate with each other- areas such as operations, finance, HR etc.
* **Staff** moved between centres - unite business.
* **Responds locally** whilst **benefiting** from being a **global business.**
44
What are the risks of internationalisation?
* Cultural differences.
* Differences in negotiating & decision- making style.
* Ethical standards.
* Anti-globalisation feelings.
* Instability of the country.
45
Why do some **pressure groups** have **Anti-globalisation feelings**?
* **Local businesses** & **cultures** are **_destroyed_** by large multinational companies. Critiques argue they are destroying local business & making the world too similar!
* **Too big multinationals** are **exploiting local businesses & employees**- e.g. produce in a country & make use of natural resources- yet **profits do not remain in the country**- are exported overseas!
46
How does **internationalisation** impact on the **functional areas** of a business?
* **Market Research-** *need to find out more about new markets & segments to target.*
* **R&D-** *as business develops new products/ modifies existing products for overseas markets.*
* **Purchasing of supplies-** *have access to far more suppliers around the world- communications technology enables to identify, contcat & manage relationship more effectively.*
* **Production-** *may look to produce overseas to benefit from lower costs, better skills & technology & availability of resources.*
* **Marketing decisions-** *how to promote & price products & how to distribute them.*
* **HR-** *How & where to recruit, rewards offered & how best to manage people.*
47
What may a businesses decision to offshore production lead to?
* **A relocation of production facilities & the development of the operation abroad (operations).**
* **A reduction in staff domestically & the recruitment of employees overseas** (HR issues). *Managing staff abroad -different- differences in labour market, skills & expectations of workforce, cultural differences & employment legislation.*
* **Lower costs**
* **Marketing may be affected** if the business can build on the regional strengths of where product is produced.
48
The decision for a business to target new overseas markets may lead to what?
**Changes to the product** & ways they are **promoted** *(adapted for new segments)*
**Changes to the operations process**- *to be able to produce products suitable for the new market.*
**Changes to HR decisions**- *if business is operating overseas- will need to recruit & train staff abroad.*
**Changes to finances-** *May be initial costs & investments to establish a presence overseas- but long term overseas sales may lead to higher profits.*
