Introduction to an International Strategic Planning Session 1.

Introduction to an International Strategic Planning

Session 1

Literature resources

Presentations / lecture notes Assigned papers International Management, Helen Deresky,

2006 (2 copies available in the library), Chapters 6 and 7

2

Grading Criteria

Activity % of the final mark

Class attendance 10 %

Participation during study case analysis

15%

Presentation 30%

Final Exam 45%

3

Strategic management process

Strategic planning process

Implementation process

4

Reasons for going international

Reactive reasons Proactive reasons

Globalization of competitors Pre-empted of

resources / markets Increased domestic

competitiveness Trade barriers Regulations and

restrictions Customer demands

Economies of scale Growth opportunities

New life cycles Resource access and

cost savings Raw materials, labour,

transportation Incentives

Decreased risk Increased profits

5

Strategic planning for international companies Strategic planning

A company business strategy is a set of fundamental choices which define its long-term objectives, value proposition to the market, how it intends to build and sustain a competitive business

system

Strategy components: Ambition – choice of long-term objectives Positioning – choice of customer segments and of value

proposition to customers Investment – choice of investments in order to create business

system able to deliver value to customers competitively Organization – Choice of people, structure, processes and

systems

6

Strategic ambition

Global player A company that aspires to establish a sustainable competitive position in the key markets of the world and to build an integrated system of designs spread over those key markets

Regional player

A company that captures a strong competitive advantage in one of the key regions of the world and is a marginal or relatively weak competitor in other parts

Regional dominant global player

A company whose role is more than a regional player but it is not yet selling across the key markets of the world

Global exporter

A company whose role is to sell across the key markets of the world products manufactured or services operated in its home country and who builds foreign operations only to support the export drive

Global operator

A company that produces a large fraction of its product components in factories located outside its base market and which concentrates its sales in its domestic market

7

Value propositionValue attributes

Elements of the product or services that customers value when making their purchasing decision (product design, functionality, performance, quality, customization, price, related service, brand, availability, etc. = customer’s value curve).Porter distinguishes 2 ‘generic’ strategies:• Differentiation – based on value enhancing attributes • Cost leadership – based on price for standardized products/services

Customer segments

Groups of customers that have similar value curves. Porter distinguishes 2 general segmentation strategies: • Focused – company concentrates its segmentation on one or two customer groups • Broad – company attempts to embrace many or all customer segments

Standard / vs. adaptive

Choice between a standardized versus adaptive value proposition across countries.• Standard – similar or standardized value set of attributes to the same type of customer segments• Adaptive – differentiated value attributes and segments based on a country / region characteristics / value curves

8

Competitive advantages

= distinctive competencies (capabilities) that are difficult to replicate or imitate and are non-tradable

Increased customer

value

Lower cost base

9

Distinctive competencies leading to competitive advantage

10

Sources of competitive advantageAccess to unique raw materials and locationAccess to licence from regulatory authoritiesPrivileged access to informationPrivileged (or first choice) access to skilled labourPrivileged access to low-cost labour forcePrivileged access to suppliersPrivileged access to cheaper capital

Unique low-cost position owing to accumulated volumeUnique low-cost/quality position owing to proprietary process technologyUnique low-cost position owing to installed baseControl of distribution network Well established brand/reputationPatentsProprietary scientific/technological know –howSuperior ability to bundle know-howSuperior ability in management of critical processesSuperiority in time managementFaster product developmentBetter management of information

Resources-based

Assets-based

Competencies-based

11

Stages in the International evolution of a companyStage Means of presence in

the marketFeatures

1 Indirect / Ad hoc exporting

Indirect exporting or the servicing of occasional, unsolicited export orders. Weak commitment to foreign markets

2 Active exporting and/or licensing

Efforts to penetrate foreign markets through agent/distributor or branch/subsidiary exporting. International business viewed as separate and distinct from domestic business

3 Active exporting, licensing, and equity investment in foreign manufacture

Efforts to penetrate foreign markets involve manufacture in some countries, combined with exporting and/or licensing in other countries. International business is not integrated across countries and regions. Nor is international business strategy integrated with domestic business strategy.

4 Full-scale multinational marketing and production

Multiple national markets are served from multiple national sources. International business strategy thoroughly integrated with domestic business strategy to form corporate business strategy. Home country is treated just as one of many national markets.

12

Level on internalization of a company

13

LOW MEDIUM HIGH

Motivation of internalization

Passive response

Proactive action

Degree of similarity, foreign vs. domestic markets

Similar Somewhat different

Very different

Number of countries where company has operations

One Several Many

Mode of operations Import/Export

Licensing Foreign direct investment

Internal vs. external handling

Foreign operations through intermediaries

Ownership of foreign operations

Entry strategy alternatives

14

Entry strategy alternatives

15

Factors influencing entry mode decision

Target country market factors

Target country

environmen-tal factors

Target country

production factors

Home country factors

Foreign Market entry mode

decision

Company product factors

Company resource / commitm

ent factors

Internal factors

External factors

16

External factors:Target country market factors The present and projected size of the target country

market Small markets entry modes that have low breakeven sales

volumes (indirect and agent/distributor exporting, licensing and some contractual arrangements).

Markets with high sales potentials high breakeven sales volumes (branch/subsidiary exporting, equity investment in local production)

Competitive structure of the target country market Atomistic (many non-dominant competitors) export Oligopolistic (few dominant competitors), monopolistic (a single

firm) investment entry modes Marketing infrastructure of the target country

Good local agents / distributors tied to other companies branch/subsidiary

17

External factors:Target country production factors Quality, quantity and costs of raw materials,

labour, energy, and other reproductive agents Quality and costs of the economic

infrastructure (transportation, communications, port facilities, etc.)

Low production costs local production against exporting

18

External factors:Target country environmental factors Economy

Market economy vs. centrally planned economy Size of the economy (GNP) / absolute level of

performance (GNP per capita) / relative importance of its economic sectors (% of GNP)

Dynamics of economy (rate of investment, growth rate of GNP, and personal income, changes in employment, etc)

External economic relations (direction, composition, value of imports and exports, the balance of payments, the debt service burden, exchange rate behaviour, etc.)

19

External factors:Target country environmental factors (contd.)

Government policies and regulations Restrictive import policies discourage export Incentives encourage investment entry mode

Geographical distance Great distance = high transportation costs

discouraged export Cultural distance

Substantial cultural distance favours non-equity entry modes

Influences entry timing (sequence) in the choice of target countries

20

External factors:Home country factors Size of the domestic market

Big domestic market allows a company to grow to a large size before it turns to foreign markets large companies are more inclined to use equity entry modes

Small domestic markets companies are more inclined to export in order to reach optimum size with economies of scale

Production costs in home market High costs licensing, contract manufacture,

investment Policy of home government toward exporting

and foreign investment by domestic firms21

Internal factors:Product factors Level of differentiation

Highly differentiated products can absorb high unit transportation costs and high import duties export

Weakly differentiated products must compete on a price basis local production (contract manufacturing / equity investment) in order to reduce costs

Pre- and post-purchase services Service-intensive products (industrial products)

branch/subsidiary exporting / local production Service vs. physical product Technology intensiveness

Licensing arrangements Level of product adaptation

22

Internal factors:Resource / Commitment factors Abundant vs. limited resources (company

size) Company with limited resources is constrained to

use entry modes that call for only a small resource commitment

Commitment High-commitment companies, regardless of their

size, are more likely to choose equity entry modes

23

Evolution of a manufacturer’s decision on entry mode

Risk

Con

trol

Time

Indirect export

Agent / distributor export

Joint venture

Sole venture

Branch export / Subsidiary

Licensing

24

Continue to exploit home country only

Logical Flow Model of Entry decision Process

Do we have products that can probably be marketed

abroad?

Should we investigate foreign markets?

Does preliminary screening indicate potential target

country markets?

Does secondary data analysis indicate a country with sales

potential?

Do primary (field) data support secondary data?

Is our entry mode the most appropriate mode, given external factors and our

objectives?

Should we investigate

other markets?

Is our performance satisfactory?

Should we enter the foreign

market now?

Is our marketing plan the most appropriate one, given

our resources and objectives?

Yes

Yes

Yes

Yes

Yes

No

No

No

No

No

Redesign entry mode

No

Redesign marketing

plan

Yes No

Delay entry

Withdraw

Redesign strategy

Stay with single market

Yes

Yes

Yes

No

No

No

No

Yes

25

Elements of an International market entry strategy

Assessing Products and

foreign markets: Choosing the

target Product / Market

Setting Objectives and Goals

Choosing the entry mode:

Export, Contractual

Arrangements, or Investment

Designing the Marketing plan: Price, Promotion,

Distribution, etc.

Target

market

Control system: Monitoring Operations/

Revising Entry Strategy

26