International Business Strategies

Why Go Abroad? Where to go?

• Issues with going abroad
  • Liability of Foreignness = inherent disadvantage of foreign companies because of non-native status. Leads to additional cost and competitive disadvantage. Eg. religion, language, culture, norms, regulations.
  • Paradox of fit (or consistent) = The more successful a firm is in its local market, the harder it is to replicate outside. Because of internal consistency (activities aligned and reinforcing) and external consistency (designed to exploit local market environment)
  • Global scale and scope - efficiency, increased scope, choosing locations
  • Different types and rates of change - in growth, innovation, productivity, risks, PESTEL (env)
  • Global competition - Diff dynamics, new rivals, diff interactions, multi-market competition
  • Organisational Complexity and diversity
  • New sources and types of risk
• Why go abroad?
  • To achieve competitive advantage: Cost or Differentiation
  • Achieving competitive advantage / adding value
    1. Add Volume
    2. Decrease Cost
    3. Differentiate
    4. Improve Industry Structure
    5. Neutralize Risk
    6. Generate Knowledge
• Where to go?
  • Tool for analysis
    1. Porter's Diamond
       • Sustained competitive advantage is due to firm innovation
       • Determinants for innovation and advantage
         1. Factor conditions
         2. Demand conditions
         3. Relating or supporting industries
         4. Firm strategy, structure and rivalry
         5. Government
         6. Leadership
         7. ...Luck?
    2. Cage Distance
       1. Cultural
       2. Administrative
       3. Geographic
       4. Economic
    3. Understanding Advantages
       1. Location Advantages
       2. Location-Bound Firm-Specific Advantages
       3. Non-Location-Bound Firm-Specific Advantages
• Strategies going abroad
  • Deployment = Replicate successful models overseas
    • Requires same competitive advantages. Aggregates demand and increase volume.
  • Development = Cater to differences.
    • Identify new capabilities and try to deploy globally
  • Deepening = Increase competitive advantage by going abroad
    • Relies on existing competitive advantage. Eg. Offshoring

How to go abroad?

• What causes industries to globalise?

  • Government Drivers
  • Cost Drivers
  • Market Drivers
  • Competitive Drivers

• How can you enter a country?

  1. Wholly owned Subsidiary
     1. Black Hole
     2. Implementer
     3. Contributor
     4. Strategic Leader
  2. Joint Venture - FDI
  3. Strategic Alliance - Equity and Non Equity
  4. Franchising
  5. Licensing
  6. Exporting

• What can you do to add value in a global landscape?

  1. Local Adaptation to market diff
  2. Exploit Global Economies of Scale
     1. Increase volume, dilute fixed costs from production
  3. Exploit Global Economies of Scope
     1. Increase portfolio, dilute other costs (non production)
  4. Optimal Locations for activities and resources
  5. Knowledge transfer across locations

• M&A

  • 4 Keys for a successful M&A
    1. Strategic Fit
       • Synergies (add value, reduce cost)
       • Taxes, goodwill etc
    2. Cultural Fit
       • More cost synergies more conflict
       • Consider differences and similarities
    3. Price
       • Multi methods, DCF & Multiples
    4. Managing the Process
       1. Be Silent - pre-deal, reduce distraction
       2. Keep Momentum - action plan and execute
       3. 100 day plan - be clear and urgent
       4. Be fair & Transparent - tell truth, execute negatives asap
       5. New Vision - overcommunicate
       6. One Org - Restructure with one org
       7. One Culture - clarity
       8. Integration team - full time empowered team on integrating
       9. BAU - Reduce distractions and blame
       10. Rigor & Human - Balancing both

  How To Organise

  • Organising Subsidiaries
    • Role
      1. Strategic Importance of Local Environment
      2. Competence of local organisation
      • Tool:Subsidiary Roles Matrix
        • High Strat, Low Comp: Black Hole → Fix
        • Low Strat, Low Comp: Implementer → Execute and report
        • High Strat, High Comp: Strategic Leader → Focus and diffuse
        • Low Strat, High Comp: Contributor → Help others
    • Ensure HQ-Subsidiary relations have Due Process
      • Explanation for Strat Decisions
      • HQ familiar with local conditions
      • Subsidiary able to challenge decisions
      • Two-way communication
      • Consistent decisions making practices across subsidiaries
  • Overall Organisation Design
    • Core
      • Functional
      • Multidivisional
      • Matrix (mix)
    • MNEs
      • Tool: Integration - Responsiveness Framework
        • High integration, low responsive: Global Strategy → Global Product Divisions
          • Max Global Economies of Scale and Scope, Req sophisticated coordination