Lecture 3 - Why Internationalize? The Internationalization Process

Question 1

What are the two most crucial questions regarding any global strategy?

Answer 1

1. Will a company’s current capabilities provide a competitive advantage in a target market?
2. Will that new location give the company an opportunity to enhance its capabilities?

Question 2

In order to create a lasting competitive advantage, firms need “a systematic process of __________, __________, and ____________________

Answer 2

exploiting, renewing and enhancing their core capabilities

Question 3

How can firms exploit exisitng capabilites? (what acronym)

Answer 3

RAT Test

• Relevant to host country consumers
• Appropriate in terms of capturing value
• Transferable –> can the be deployed successfully?

With this, does the proposed expansion make sense?

Question 4

How can firms exploit exisitng capabilites? (what acronym)

Answer 4

RAT Test

• Relevant to host country consumers
• Appropriate in terms of capturing value
• Transferable –> can the be deployed successfully?

With this, does the proposed expansion make sense?

Question 5

what is an example of a company not properly exploiting existing capabilities?

Answer 5

IKEA in Japan

In 1974, the brand introduced its products to Japan but had to retrieve in 1986 failing to respond to the demand and to meet customers’ expectations…. It took IKEA 20 years to re-introduce its products and services to the Japanese market.

Challenges?
- Size of furniture
- Assembly
- Etc.

Question 6

How can firms create NEW capabailities (ie where do they come from)?

Answer 6

(Whether the new resources, assets, capabilities result in an overall enhancement of the company’s capabilities and its global competitive position.)

Where do these NEW capabilities come from?
1. We acquire a company so their capabilities become ours.
2. We cope successfully with the challenges thrown at us in the host country’s competitive and institutional environment.

Question 7

What do new capabilities do for a firm?

Answer 7

1. complement the company’s existing set of capabilities,
2. can actually generate additional value for the company, and
3. it is possible to transfer them from the specific context in which they were developed (the foreign country) to the rest of the organization.

Question 8

What test should firms use for new capabilities?

Answer 8

CAT

• Complementary to existing capabilities
• Appropriable, capture value from these capabilities
• Transferable, integrate them into its capability set without sacrificing their value?

Question 9

What are the 5 strategic imperatives of globalization

Answer 9

1. The growth imperative
   * Demand grows, firms should keep up
2. The efficiency imperative
   * Global presence creates cost advantage that can be used at home to beat domestic competitors
3. The knowledge imperative
   * To expand and adapt we need to obtain local knowledge through local presence.
4. Globalization of customers
   Our corporate customers go global so should we to keep serving them.
5. Globalization of competitors
   * Our competitors go global so should we to keep competing with them.

Question 10

What are the key choices firms need to make when globalizing?

Answer 10

• Choice of Products
  (The entire portfolio of products or a subset of product lines?)
• Choice of Strategic Markets
• mode of entry

Question 11

what are the 3 parts of choice of market?

Answer 11

1. Market Size
2. Growth Expectations
3. Learning Potential (customers expectations, standards to meet, rate of technological evolution)

Question 12

Describe the Choice of products matrix

Answer 12

Axes: Required degree of local adaptation, expected payoffs from globalization

*most attractive is where adaptation needs are low and expected payoffs are high

*least attractive is high adaptation requirements, low expected payoffs

Question 13

describe strategic markets choice matrix

Answer 13

axes: strategic importance of market, firm’s ability to exploit the market

High importance, low ability to exploit: Phased- in entry (create beachhead first)

Low importance, low ability to exploit: ignore for now

high importance, high ability: rapid entry

low importance, high ability: opportunistic entry

Question 14

what are the key considerations underpinning the decision to produce locally?

Answer 14

1. Size of the local market is larger than minimum efficient scale of production
2. High shipping and tariff costs associated with exporting to the target market
3. Need for local customization of product is high
4. Local content requirements are strong
5. Physical, linguistic, and cultural distance between the home and host countries is high
6. The subsidiary would have low operational integration with the rest of the multinational operations.
   —-> Local production helps the firm to reshape and align the subsidiary.
7. The risk of asymmetric learning by partner is low.
   —> Firm A and B start JV partnership but the due to learning race replacing complementary performance, they part ways and one end up with local production at 100%.
8. The company is short of capital, thus partnership.
9. Government regulations require local equity participation.

Question 15

Greenfield vs Cross border acquisition matrix

Answer 15

Axes: Market growth rate, uniqueness of corp culture

Low and Low: Cross-border acquisitions

High and high: Greenfield operations

High and low/low and high: either

Question 16

What are some core elements that a firm must transplant when trying to transplant corporate DNA?

Answer 16

• culture
• best practices
• procedures
• processes
• approaches

Question 17

Global expansion forces companies to de- velop at least three types of capabilities: learning about ________, learning how to ___________, and learning how to ____________

Answer 17

learning about foreign markets,

learning how to manage people in foreign locations,

and learning how to manage foreign subsidiaries.

Question 18

what two dimensions determine the strategic importance of a market?

Answer 18

1) market potential, and (current market size and growth expectations)

(2) learning potential.

Question 19

drivers of a market’s learning potential (2)?

Answer 19

1. presence of sophisticated and demanding customers for the particular product or service.

2.the pace at which relevant technologies are evolving there.

Question 20

what does the ability to exploit a market depend on? (2 factors)

Answer 20

(1) the height of entry barriers, and

(2) the intensity of competition in the market.

Question 21

how can a company develop the capabilites to enter an important market?

Answer 21

first enter a beachhead market: one that closely resembles the targeted strategic market but provides a safer opportunity to learn how to enter and succeed there.

Question 22

What are the four ways an “invader” company can respond to local competitive threats?

Answer 22

1. Enter by acquiring a dominant local com- petitor.
2. Enter by acquiring a weak local competitor who can be quickly transformed and scaled up.
3. Enter a poorly defended niche.
4. Engage in a frontal attack on the dominant and entrenched incumbents.