International Entry Modes and Strategy
Jan 12, 2016
International Entry Modes and Strategy
Touareg Passat Jetta Beetle Golf
EngineGermanyHungary
GermanyPolandMexico
Mexico Hungary
Transmission Japan JapanArgentina
JapanArgentina
JapanArgentina
Final Assembly
Slovakia Germany Mexico Mexico Brazil
Country of Origin for VW Models Sold in U.S.:Major Components and Final Assembly
VW Jetta
TransmissionsJapan
AssemblyMexico
EnginesPoland
CustomersU.S.
Reasons to “Go Global”Proactive Reasonso Exploit factor-cost
differences across countries
o Unique producto Technological advantageo Economies of scaleo Growing foreign marketso Exclusive informationo Attack rivals on home turf
Reactive Reasonso Competitive pressureo Overcapacityo Declining domestic
saleso Saturated home marketo Under attack from
foreign rivals
Going Global: Effect on Bottom Line
ROI
% Foreign Sales/Total Sales
Foreign Market Entry Modes
Export Licensing Joint Venture WOS
Acquisition Greenfield
Entry Mode Framework
Mindset Country-market opportunity/cost analysis
Stand-alone Attractiveness Strategic Importance
Resources-Control-Risk tradeoff
Mindset and International Activity International
Overseas activities support / subordinate to domestic activities
Multinational Flexibly adapting value-creating activities on
country-by-country basis; nationally-responsive Global
The world is the market; standardization Transnational
“Glocalization” – Some value-creating activities standardized/globalized, others localized
Entry Mode Decision Matrix
Hi
Lo
HiLo
Str
ateg
ic I
mpo
rtan
ce
of C
ount
ry
Stand-alone Attractivenessof Country
Lo
Hi
Resource
s,
Control,
Risk
Country-Market AnalysisStand-alone attractiveness:
–Size–Growth–Product acceptance / segmentation–Cultural similarity–Risk–Policy incentives–Other factors? ….MNC “power”?
Country-Market AnalysisStrategic importance:
–Home market of global customer–Home market of global rivals–Significant market of global rivals–Major source of innovation–Demanding/sophisticated customers–Factor-cost advantages
Resources-Control-Risks Resources
$$, time, technology, machinery, people, organizational, strategy
Control Operational and strategic discretion over
value-creating activities Risks
Political, F/X, economic, cultural, dissemination
Control Extent of involvement:
Channel control / ownership:
Ship Product
Marketing
Distribution
After-salesSupport
Mfg.
ExportAgent
ImportAgent
RegionalWhsle.
LocalWhsle.
Retail
Entry Mode Decision Framework
Licensing
Exporting Intermediaries
Direct
Joint Venture
Wholly-owned Subsidiary
Control Resources Risk Dissem. Low LowLow
High HighHigh Low
High
Entry Mode Decision Matrix
Hi
Lo
HiLo
Str
ateg
ic I
mpo
rtan
ce
of C
ount
ry
Stand-alone Attractivenessof Country
Lo
Hi
Resource
s,
Control,
Risk
General Electric and International Involvement
GE Product Divisions: Light bulbs Aircraft engines Appliances Power-generation
GE Market Opportunity: North America Europe Pacific rim / Asia Emerging markets
GE’s Markets, Entry and Strategy ChoicesP
rodu
ct L
ines
Country-Markets Internatio
nal
Strateg
y
4
3
2
1
A B C D
Entry Mode Decision Matrix
Hi
Lo
HiLo
Str
ateg
ic I
mpo
rtan
ce
of C
ount
ry
Stand-alone Attractivenessof Country
Lo
Hi
Resource
s,
Control,
Risk
Procter & Gamble
Pan-European Brand Development
P&G Multidomestic Strategy
UK
GermanyFrance
Italy
Neth.
Product Characteristics MapHigh Washing Temp
FabricSoftener
BleachAdditives
EnzymaticStain
Removers
Product Characteristics MapHigh Washing Temp
FabricSoftener
BleachAdditives
EnzymaticStain
Removers
Italy
Spain
ItalyExcludedcountries
P&G “TransEuro” Strategy
UK
GermanyFrance
Italy
Neth.
Spain
Zone 1
Zone 2
No problem taking a sack.
I’ll just use Vizir after the game.
Gotta keep this sweaty Tarheel off
my clean uniform…
I’m out of Vizir.
Epilogue VIZIR was precursor to “Liquid Tide” in US
– Great irony is: P&G’s struggle to develop “Euro-brand” first found success in another large, integrated market…the U.S.
– The VIZIR experience facilitated learning/cross-fertilization w/in P&G worldwide
– Developed “world-class” technology and product development capabilities worldwide
Industry Globalization
o What is a global industry? Why?o Which drivers/factors most important?o How does a global industry compare with a multi-
domestic one?o How is the extent of globalization “measured”?o What are the implications for firms’ international
strategies?
Globalization Drivers
o Market Driverso Cost Driverso Government Driverso Competitive Drivers
Low
Multi-domestic
High
Global
Definitions
Multi-domestic –Many-country view of the international
marketplace–Value chain activities are performed in the
local country-market and are adapted to local tastes, preferences, needs, etc.
DefinitionsGlobal
–A whole world-level view of the international marketplace, the world is the market
–Value chain activities are standardized and are performed in country locations according to efficiency, favorable policies, knowledge, resources, etc.
DefinitionsTransnational
–A “glocal” level view of the international marketplace – has some global, some local elements
–Some value chain activities are standardized and are performed in country locations others are nationally-adapted and performed in the local market
Market Globalization Drivers
o Common customer needso Global customerso Global market channelso Transferable marketing
Strength of Market Drivers
Low High
Baked Goods
Book Publishing
Retail Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Aircraft
Multidomestic Global
Cost Globalization Drivers
o Global scale economieso Sourcing efficiencieso Factor of production differenceso High product development costso Rapidly changing technology
Strength of Cost Drivers
Low High
Baked Goods
Retail Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Aircraft
Pharmaceuticals
Multidomestic Global
Government Globalization Driverso Unrestrictive trade and investment policieso Compatible technical standardso Common marketing regulations
Strength of Government Drivers
Restrictive Loose
Baked Goods
Retail Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Airlines
Pharmaceuticals
Multidomestic Global
Competitive Globalization Driverso High two-way trade / cross-border FDIo Global competitorso Interdependence among countries
o Trade/Investment PoliciesoRole of WTO, etc.
Strength of Competitive Drivers
Low High
Baked Goods
Retail Banking
Toothpaste
Soft Drinks
Automobiles
Computers
AircraftPharmaceuticals
Multidomestic Global
International StrategyoGlobalization drivers – Assess dual
pressures:• Global efficiency - standardization• National/local responsiveness - adaptation
oLocation/configuration of value-creating activities
o Integration/coordination of value-creating activities
Effective Standardization
Coca-Cola’s “transnational polar bears”
McDonald’s “Big Mac”
Effective Adaptationo Campbell’s non-condensed soups in
the UK
o P&G single-use shampoo packages in India
Effective “Transnationalization”
o Barbie is 51 years oldo Sold in 130 countrieso National adaptations:
• Physical features• Costumes• Activity sets
o Standardized physique:• Scaled to 6’2”, 110 lbs.
Globalization Drivers
o Market Driverso Cost Driverso Government Driverso Competitive Drivers
Low
Multidomestic
High
Global
International Strategy:Managing Dual Pressures
Pre
ssur
es f
or G
loba
l Eff
icie
ncy
Pressures for Local Responsiveness
High
Low
HighLow
Value ChainLocation and standardization/adaptation
Infrastructure
Technology Development
Procurement
Human Resource Management
InboundLogistics Operations
OutboundLogistics Marketing Service
ProfitMargin
Value Chain
Infrastructure
Technology Development
Procurement
Human Resource Management
InboundLogistics Operations
OutboundLogistics Marketing Service
ProfitMargin
Headquarters
Value Chain
Infrastructure
Technology Development
Procurement
Human Resource Management
InboundLogistics Operations
OutboundLogistics Marketing Service
ProfitMargin
Upstream
Headquarters
Value Chain
Infrastructure
Technology Development
Procurement
Human Resource Management
InboundLogistics Operations
OutboundLogistics Marketing Service
ProfitMargin
Upstream Downstream
Headquarters
Value Chain Sub-functions (Marketing)Infrastructure
Technology Development
Procurement
Human Resource Management
InboundLogistics Operations
OutboundLogistics Marketing Service
ProfitMargin
Advert. Pricing Distrib. Packaging
Value Chain Configuration
o Geographic location of value chain activities – Concentrated/centralized vs.
dispersed/decentralized
Value Chain Coordinationo Cross-border linkages between dispersed value-
creating unitso Coordination = Flows of:
– $– Product (finished and intermediate)– Technology– People– Information (market data, strategic direction, etc.)
o Highly coordinated vs. only money flows
International Strategy:Managing Dual Pressures
Pre
ssur
es f
or G
loba
l Eff
icie
ncy
Pressures for Local Responsiveness
High
Low
HighLow
ExportStrategy
Export Strategy(same as Export entry mode)
U.S.
Germany
Mexico
Malaysia
International Strategy:Managing Dual Pressures
Pre
ssur
es f
or G
loba
l Eff
icie
ncy
Pressures for Local Responsiveness
High
Low
HighLow
ExportStrategy
??
MultidomesticStrategy
Multidomestic Strategy
U.S.
Germany
Mexico
Malaysia
International Strategy:Managing Dual Pressures
Pre
ssur
es f
or G
loba
l Eff
icie
ncy
Pressures for Local Responsiveness
High
Low
HighLow
ExportStrategy
??
MultidomesticStrategy
GlobalStrategy
Global Strategy(Textbook Variety)
U.S.
Germany
Mexico
Malaysia
International Strategy:Managing Dual Pressures
Pre
ssur
es f
or G
loba
l Eff
icie
ncy
Pressures for Local Responsiveness
High
Low
HighLow
ExportStrategy
??
MultidomesticStrategy
GlobalStrategy
TransnationalStrategy
Transnational Strategy (v.1)
U.S.
Germany
Mexico
Malaysia
Transnational Strategy (v.2)
U.S.
Germany
Mexico
Malaysia
Transnational Strategy (v.3)
U.S.Germany
Mexico
Malaysia
Engines
Final Assembly
Trim, seats,glass
Steel
VW International Strategy - Jetta
Germany
Japan
Mexico
Poland
Transmission
Final Assembly
Engine
Misc.
U.S.Marketing
McDonald’s Identity
McDonald’s Transnational MenuUS Brazil Canada India Germany
Big Mac French Fries Coca-Cola McNuggets McAloo Tikki McRib McBier McLobster McCalebresa PitaMac McFarmer
McDonald’s Site Selection and StoresUS -- Colorado
McDonald’s Site Selection and Stores
Bangkok,Thailand
McDonald’s Site Selection and StoresMoscow, Russia
Hamburger UniversityIllinois, USA
Hamburger University Curriculum
o 80 classroom hourso Topics – Fast food “the McDonald’s way”
• Restaurant operations, food preparation• Crew selection, training and team building• Marketing and promotion• Asset management• Corporate citizenship and ethics• Leadership, effective supervisory skills
Hamburger University
Illinois
Sydney
London
Munich
Hong-Kong
McDonald’sTransnational Strategy
U.S.
Singapore
Greece
Brazil