Week 7 Flashcards
(73 cards)
1
Q
Reasons for internationalization (wichtig)
A
- Growth opportunities through market diversification (main)
- Higher margins and profits
- New ideas about products, services and business methods
- Co location with international consumers
- Proximity to supply sources, benefit from global sources advantages, or gain flexibility in product sourcing (big reason)
- Access to lower cost or better value factors of production (ex. China)
- To develop economies of scale in sourcing, production, marketing and R&D
- Effectively compete internationally or thwart the growth of competition in the home market
- Invest in a potentially rewarding relationship with a foreign partner
2
Q
Measure Thrice..
A
Motivation check
Readiness Check
Market Selection & entry Check
3
Q
The motivation check (wichtig)
A
- Drivers
- “What compels us to go (more) international - Benefits
- “What do we hope to gain by increased internationalization - Synergies
- “What additional benefits can be created
4
Q
Push vs. Pull factors (wichtig)
A
Push (reactive drivers; comes from outside and makes us do someting)
Pull (proactive drivers; comes from in the organization)
5
Q
Push
A
- internationalization of customers
- internationalziation of cometitors
- internationalziation of suppliers
- legal Rules & restrictions
- trade barriers
6
Q
Pull
A
- Economies of Scale and Scope
- growth opportunities
- favorable resource availability
- innovation drive
- government incentives
7
Q
Motivation check drivers (wichtig)
A
- industrialization, economic development, and modernization
- market liberalization and adoption of free market
- worldwide reduction of barriers to trade and investment
- integration of world financial markets
- advances in technology
8
Q
Motivation check benefits
A
subsidiary skills
- Competence development & transfer from subsidiary abroad to head office and in the global web
experience effects
• Learning effects (Economies of scope)
• Economies of scale (semiconductors, pharmaceuticals)
location economies
• Value creation in an optimal location
• Creating a global web
Expanding the market
• Superior product without international
competition
• Unique competencies
9
Q
Benefits of internationalization
A
- Greater Flexibility
- Lower susceptibility to systematic intra economic shocks
- Scale, scope and cost advantages
- Higher sustainability of superior economic rents through the erection of entry barriers for international
competitors - Higher ROA and post tax ROA than uni national
corporations - Superior production and supply activities
- Higher market value
10
Q
Costs of internationalization
A
- higher costs
- reduced control
- problems of joint control in JVs
- Long-run business impairments through behavior locally seen as unethical
- costs of litigation
11
Q
Stages of Internationalization
A
early internationalization
mid-stage internationalization
highly internationalization
12
Q
early internationalization
A
Liability of foreignness, initial learning costs, insufficient economies of scale
13
Q
mid-stage internationalization
A
Resource augmentation and exploitation, internalization of transaction costs, economies of scale and scope, extension of product life cycle, access to lower cost resources
14
Q
highly internationalization
A
Cultural distance, coordination costs of very
dispersed markets, expansion into peripheral markets
15
Q
the readiness check (wichtig)
A
- company readiness
- market readiness
- product readiness
16
Q
Company readiness: barriers to internationalization
A
lack of knowledge about foreign markets
lack of networks
lack of resources
17
Q
10 Fatal Flaws (wichtig)
Issue - solution
A
- Themarket is too small - do the research
- the team can’t do it - SWOT your team
- can’t get the capital - provide alternative sources of funding
- you can’t get distribution - map your competitiors, suppliers & customers
- high cost of entry - identify who has the “power” (IVC Tool)
- overwhelming competition - identify where the “power” is (5 forces model)
- no control over prices - identify who has the “power” (IVC Tools)
- no product development control - check restrictions in supply agreements
- limited product expansion - use lifecycle model for new products/services
- limited harvest opportunities - show me the money
18
Q
The market selection & entry check (wichtig)
A
target
pacing
scale
19
Q
Market Selection & Entry Check: Target Market Assessment
Criteria
A
• Size and growth rate • Market intensity • Consumption capacity • Receptivity to imports • Infrastructure for doing business • Degree of economic freedom • Country risk, etc
20
Q
four cases of firm internationalization
A
the lonely international
- high degree of firm internationalization and low degree of market internationalization
the international among others
- high degree of firm internationalization and high degree of market internationalization
the late starter
- low degree of firm internationalization and high degree of market internationalization
the early starter
- low degree of firm internationalization and low degree of market internationalization
21
Q
First mover advantages
A
- The ability to pre empt rivals by establishing a strong brand name
- T he ability to build up sales volume and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants
- T he ability to create switching costs that tie customers to their products or services
22
Q
First Mover Risks
A
- Pioneering Costs: arising from time, expense, and effort devoted to cracking the code of the new
market
• Cost of business failure: due to ignorance of the foreign environment, etc.
• Liability of being a foreigner
• Cost of promoting and establishing a product offering (including the cost of educating customers) - Regulation changes
23
Q
Market Selection & Entry Check: Scale
A
import & exporting
contractual cooperation
foreign direct investment
24
Q
Direct vs. Indirect Export
A
direct: from company directly to customer
indirect: from company to wholesaler and than to customer
25
Exporting Pros
- No investment in overseas production facilities
- Risk and investment minimization
- Fast entry is possible
- Prevents competitors from gaining First Mover Advantage
- Can sell excess capacity
- Gain information about foreign competitors
- Reduced dependence on existingmarkets
26
Exporting Cons
- More expensive: tariffs, marketing expenses, transportation costs, etc.
- Logistical and organizational difficulties between exporter, importer, transportation provider, government, etc.
- Limited access to local information
- Viewed as an “outsider”
- Need to develop a customer base
- Trade barriers to overcome
- Loss of control over pricing and marketing
27
Licensing: Pros
| for example Microsoft
- Increased revenue based on developed research with costs of a new plant
- Requires little upfront capital and a solid rate of return
- No exposure to nationalization or loss of assets in country
- Licensor can take advantage of local marketing and distribution with licensees’ customer contracts
- Local producer may have advantages or other country specific contracts
28
Licensing: Cons
- Licensor is yielding markets to the licensee for an agreed upon time
- Selecting the right partner as the licensee may be a future competitor
- Licensee fees may not reflect the true turnover potential of the licensor’s knowledge
- Little to no control of licensee operations
- Potential loss of brand and lack of quality control
29
Franchising for example McDonalds Pros
- Lower risk (since franchisee invests in necessary costs, i.e. equipment, etc.)
- Able to develop new markets on a large scale quickly
- Use of proven business model in a new market
- Marketing and brand can take advantage of economies of scale with the growth of an international
customer base
- Could be the first activity for Foreign Direct Investment in other areas
30
Franchising Cons
- Lack of control over franchisee activities and actions
- Costs of developing brand recognition and marketing of franchisee
- Cost associated with protecting the brand and goodwill of a franchise
- May create a future competitor (as knowledge of business acumen and processes develop)
- Risk to licensor’s reputation; international profile may be damaged by licensee practices
31
```
Joint Venture (JV)
(it's in their interes to make it work
```
A firm that is jointly owned by two or more otherwise independent firms (most joint ventures are 50:50 partnerships)
32
Joint Venture (JV) Pros
- Access to exchanged skills and resources
- Access to expertise and local market contacts
- Ability to focus on company core competencies
- Reduced market and political risk
- Easier to overcome government restrictions and tariffs
- Less costly than acquisitions
- Shared risk of failure
33
Joint Venture (JV) Cons
- Contribution to JV may become disproportionate
- Could lead to loss of control of foreign operations
- Goals of partners may be incompatible, leading to conflict
- Cultural differences could lead to differences in management practices
- JV importance could shift, over time, between partners
- Loss of confidentiality and flexibility
34
Mergers & Acquisitions (M&As) Pros
- Less time consuming and quicker to execute, immediate grab of market share when acquiring established
company
- Preempt competitors in rapidly globalizing markets (deregulation + liberalization)
- Less risky compared to greenfield, bank on existing goodwill of the acquired company
35
Mergers & Acquisitions (M&As) Cons
- Complex task involving bankers, lawyers, M&A specialists
- Restrictions on foreign acquisitions in host countries
36
Corporate Divorce Rate
The failure rate for mergers and acquisitions sits between 70 and 90 percent (HBR,
37
Acquisitions
| often fail due to …
1. Acquiring forms often overpay for the assets (e.g. Quaker/Snapple)
2. Clash of corporate or national cultures (e.g. AOL/Time Warner)
3. Regulatory interference or pressure (e.g. Lockheed Martin / Northrop
4. Integrating the operations of both companies take much longer or does not happen (e.g. Railroad New York / Pennsylvania
5. Inadequate pre acquisition screening (e.g. HP / Autonomy) Corporate Divorce Rate
38
Wholly Owned
| Subsidiaries/FDI
The firm owns 100 percent of the stock (i.e. set up a new operation, acquire an established firm) FDI (greenfield venture), acquisition of established firm
39
Wholly Owned
| Subsidiaries/FDI: Pros
- Reduced risk of losing control over core competencies (technological advantage)
- Gives a firm tight control overoperations in different countries thatis necessary for engaging in global strategic coordination
- May be required in order to realize location and experience curve economies
- Less risky than acquisitions; less potential for unpleasant surprises
40
Wholly Owned
| Subsidiaries/FDI: Cons
- Most costly entry strategy: the firm bears the full cost and risk of setting up overseas operations
- Slower to establish
- Preemption by more aggressive global competitor and losing potential market share
41
Situation 1: The firm needs to connect with an experienced partner already in the target market and reduce risk
joint venture
42
Situation 2: The firm has no foreign manufacturing expertise and requires investment only in distribution
indirect exporting; we make it at home and the others distribute it for us
43
Situation 3:The firms’ intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast and the need for global integration are high
mergers and acquisations
44
Situation 4: In a highly competitive and innovative industry a company with a strong and well known brand wants to expand in an attractive developed market
frenchising or licensing (if it's IT)
45
Situation 5: A big company with a lot of international experience wants to expand in a growing emerging market. An independent brand with strong local sales is the main competitor
joint venture with the local sales or the competitors
46
Situation 6: A company targets a growing consumer spending in a politically and legally challenging region.
direct / indirect exporting
47
Entry mode selection factors (wichtig)
- pressure for cost reduction
- core competencies
- localization pressure
- product characteristics
- target market characteristics
48
Conventional Internationalization Process
1. Positive correlation between market knowledge and the commitment decisions
2. Emphasize the sequential development of market activities and their positive correlation to market
commitment
3. Increased market knowledge leads to increased market commitment which leads to increased market
commitment, etc., and vice versa
49
Conventional MME: Characteristics
- Firms with large resources are expected to take large steps toward internationalization
- When foreign market conditions are stable and homogeneous, learning about them is easy
- When firms have considerable experience with markets that are similar to a newly targeted foreign market, previous experience may be generalizable to the new market
50
Conventional MME: Drivers
- Growth opportunities through market diversification
- Higher margins and profits
- New ideas about products, services and business methods
- Co-location with international consumers
- Proximity to supply sources , benefit from global sources advantages, or gain flexibility in product sourcing
- Access to lower cost or better value factors of production
- To develop economies of scale in sourcing, production, marketing and R&D
- Effectively compete internationally or thwart the growth of competition in the home market
- Invest in a potentially rewarding relationship with a foreign partner
51
Born Global: Drivers
- Changes in political, economic, technological, and social conditions
- Cost reduction due to improvements in international communication and transportation
- Increased homogenization of foreign markets
- Increased availability of international financing opportunities
52
Recent Trends Leading to the Emergence of Born Global Firms
- The increasing role of niche markets and greater demand for specialized or customized products
- Significant advances in process technologies , which enable firms to engage in profitable small scale production of complex components;
- A dvances in communications technology , such as fax, e mail and the world wide web, which means that small firms can manage international operations more efficiently and have greater access to information;
- The inherent advantage of small firms in terms of quicker response time, flexibility and adaptability
- The internationalization of knowledge, tools, technology and facilitating institutions, which provide opportunities for technology transfer and access to funding
- Trends towards global networks , which are facilitating the development of mutually beneficial relationships with international partners.
53
Born Global Characteristics (wichtig)
Organizational Culture
- Managerial vision
- Strong, clear, &/or dynamic leadership
- Higher appetite for risk;
- Proactive competitive posture
- Highly innovative
- “Can do” mindset
International Marketing
- Relationship building expertise
- View the world as their market
- Internationalize early or from the onset of the company’s founding
- Unique product/service offerings
54
Conditions of Early Internationalization
1. Firms’ need to internationalize in order to sustain the degree of products’ specialization and consequent increase of niche markets that new market conditions are requesting
2. Globalization is leading to an increase homogenization of buyer preferences around the world making international business easier.
3. Technological developments in the areas of production, communication transportation and international logistics reduced transaction costs and facilitated growth of international trade.
4. Capabilities of human capital , with international perspective, including the firms founders, are increasing due to student exchange programs, international work assignments, etc.
55
Born global challenges
PESTEL Factors
meeting customer expectations
learship /& team maturity
56
Born-again global positioning
domestic-based exporter
- high company maturity and low degree of internationalization
born-again global
- high company maturity and high degree of internationalization
born global
- low company maturity and high degree of internationalization
Generic domestic start-up
- low company maturity and low degree of internationalization
57
Born again Global: Characteristics
- Internationalize very rapidly, once they start
- Were predominantly ‘traditional’ firms, until a ‘critical incident’ or episode precipitated a dramatic change in their strategic focus
- In some cases, rapid internationalization occurred due to a combination of ‘critical incidents’ and not just as a result of a single ‘episode’.
58
Born again Global: Characteristics
| Critical incidents include
1. Change of ownership
2. Acquisition
3. Client Followership
59
Motivations for Internationalization Through Networks.
The process of company internationalization and of the selection of modes of entry to a foreign market may stem from the following needs:
1. Development of knowledge about a given market and the process itself,
2. Quantitative and qualitative adjustment to the requirements of a given foreign market
3. The use of an established position in a network
60
Characteristics of Network based Internationalization
1. Comprehensiveness: which stems from the frequency and nature of the interactions
2. Interactions: which affect entities that are both internal and external to the company
3. Unpredictability: due to the high degree of interaction with external and environmental factors as well as the changes that these factors have on modifying internal structures, and processes
61
Features of the Network Model.
| The key features of the Network Model are as follows
- This model is based on the theories of social exchange and focuses on firm behavior in the context of inter organizational and interpersonal relationships
- Relationships between the actors are based primarily on personal connections , and then secondarily, on technical, economic, and legal factors
- A firm does not act alone in relation to other actors in a market
- The organization is reliant on other firms’ resources surrounded by the same network; an example is the customer and supplier relationships
62
Network Relationships
- The network relationships are significant opportunities for the acquirement of resources and knowledge that are necessary for foreign development of firms.
- The relationships of firms in a domestic network can be used as bridges to other networks in other Countries. Such direct and indirect bridges to different country networks can be important in the opening steps abroad and in the successive entry of new markets in an emerging industry.
63
Springboard Model
```
Motivational factors
compelling factors
unique challenges
unique activites
motivation of EM MNEs
```
64
External & Internal Forces
| Springboard behaviors are encouraged by several critical forces, including:
1. H ome government support for going global
2. Willingness of global players to share or sell strategic resources and offshore availability of standardized technology
3. Corporate entrepreneurship and strong motivation to enter key foreign markets
4. Increasing competitive pressure from global rivals
5. Quick changes in technological and market landscapes and a heightened borderless world economy
65
Springboard Model Challenges
The most significant challenges facing MNE’s using the
Springboard Model include (wichtig)
- Poor home country corporate governance, poor accountability, lack of transparency, etc. (wichtig)
- Difficulties building effective working relationships with host country stakeholders, reconciling disparate national and corporate level cultures, organizing globally dispersed complex activities , integrating home and host country operations, etc.
- Lack of global experience, managerial competence, and professional expertise
- Weaker product innovation compared with advanced market MNE’s
66
home replication advantages
* Leverages home country based advantages
| * Relatively easy to implement
67
home replication
| disadvantages
* Lack of local responsiveness
| * May result in foreign customer alienation
68
Multi domestic
| advantages
• Maximizes local responsiveness
69
Multi domestic
| disadvantages
* High costs due to duplication efforts in multiple countries
* Too much autonomy
70
Global
| advantage
• Leverages low cost advantages
| scale
71
Global
| disadvantage
* Lack of local responsiveness
| * Too much centralized control
72
Transnational
| advantage
* Cost efficient while being locally responsive
| * Engages in global learning and diffusion of innovations
73
Transnational
| disadvantage
* Organizationally complex
| * Difficult to implement
