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MGT448
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Global Business Strategies
Weekly Themes
Contemporary Global Business Environment
Global Business Strategy FormulationStrategic Implementation:
Global Business Operations
Strategy Implementation:
Finance & Marketing in Global BusinessChanging Environment of
Global Business
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Global Business Strategies
Week Two:
Global Business Strategy Formulation
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Theory of Foreign Direct Investment (FDI)
Modes of Entry (1)
Export/Import
Indirect export a manufacturer sells its products to
consumers in another country, working through
independent international intermediaries. If the
manufacturer has shares in one or several
intermediaries, then this can be regarded as FDI.
Direct export a firm sells its products to consumers
in another country by fulfilling its own sales contracts
in the host country. This is usually classified as trade
not FDI.
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Theory of Foreign Direct Investment (FDI)
Modes of Entry (2)
Licensing
A firm licenses the right to produce its product, the
use of its production process, or the use of its brand
name or trademark to a foreign firm.
Franchising
A specialized form of licensing in which the franchisersells intangible property to the franchisee and insists
on rules to conduct the business.
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Theory of Foreign Direct Investment (FDI)
Modes of Entry (3)
Management contracts
The export company usually provides the
management team and technology, while the host
country firm provides the capital (money, facilities,
labor, etc.).
Contract Manufacturing A foreign producer makes products in the host
country for the host country market.
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Theory of Foreign Direct Investment (FDI)
Modes of Entry (4)
Joint ventures (mergers and acquisitions)
A cooperative undertaking between two or more firms
in which they share ownership and control.
Strategic alliances (mergers and acquisitions)
A cooperative agreement between actual or potential
competitors that can run the range from formal jointventures to short term contractual agreements.
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Theory of Foreign Direct Investment (FDI)
Modes of Entry (5)
Turnkey operations
A cooperative agreement in which a firm agrees to set
up an operating plant for a foreign client and hand
over the key when the plant is fully operational.
Wholly owned subsidiaries (green field FDI)
The exporting firm enters the foreign market bydeveloping foreign-based assembly, manufacturing,
or distribution facilities.
This is a narrow definition of FDI.
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Theory of Foreign Direct Investment (FDI)
Decision Framework
How high are
transportation costs and
tariffs?
Is know-how amenable to
licensing?
Is tight control over foreign
operation required?
Can know-how be protected
by licensing contract?
Then license
Export
No
Yes
Yes
Low
No
Yes
No
FDI
FDI
FDI
High
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Theory of Foreign Direct Investment (FDI)Forms of FDI Horizontal direct investment
FDI in the same industry abroad as companyoperates at home.
Vertical direct investment Backward - investments into industry that provides
inputs into a firms domestic production (typically
extractive industries/production) Forward - investment in an industry that utilizes the
outputs from a firms domestic production (typicallysales and distribution)
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Business Risk Analysis (1)
Country & business risk analysis
STP (Segmentation, Targeting, Positioning) factors
analysis related to country
SWOTT analysis (Strengths, Weaknesses,
Opportunities, Threats, and Trends)
Initial screening:
Basic need and/or potential for foreign trade orinvestment
Possible modes of entry
Possible forms of FDI if FDI is chosen
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Business Risk Analysis (2)
Second screening: economic & financial forces
Economic indicators (GDP, growth rate, inflation,
interest rate, unemployment rate, etc.)
Exchange rate controls
Currency convertibility
Capital mobility
Trade barriers Balance of payments
Budget deficits
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Business Risk Analysis (3)
Third screening: political & legal forces
Entry barriers
Profit remittance barriers
Business law
Political stability
Other possible barriers
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Business Risk Analysis (4)
Fourth screening: socio-cultural forces
Demographics
Cultural/Communication
Religious
Educational
Health/Labor
Fifth screening: competitive forces Number, size, and financial strength
Market share
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Global Strategic Planning Process
Analyze external global environment
Define corporate vision/mission
Set corporate objectives
Quantify objectives
Formulate corporate strategies
Implement/execute strategic plan Control and evaluation
Devise contingency plan
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Mission Statements
Define our business & who we are
Identification of stakeholders & their claims
Labor
Customers
Suppliers
Stockholders/Shareholders
Management Community
Needs to go global to address the above
targets and interests
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Stages of Economic Development
Traditional
Pre-Conditions for growth
Take-Off
Drive to Maturity
Age of Mass Consumption