Strategic management

Strategies for International

Expansion a different approach for Trans National Firms and SME

ESC Brest

ESC Bretagne Brest - Globalization and Corporate Strategies 1

Objectives of the session

Understand the impact of globalization on corporate strategies: the

necessity to grow international

Review the corporate strategies for growth and the challenges raised

by international expansion

Understand how small and medium size enterprises can expand on

foreign markets

Understand the differences in the international growth pattern

between small and medium size firms and large trans-national ones

Understand how large trans-national enterprises deploy their

strategies across the entire world

The characterisitics of global companies


Summary of the previous episode

The major consequences of the globalization are related to the

opening of the world. They are:

Massive increase of world trade, exchanges of any kind (raw

materials, industrial goods, services, technologies, ideas, cultures)

Massive increase of cross border investments, foreign direct

investments – the seed of the development of newly emerging

countries, when they open their economies to the routes of the

open world

Massive increase of migration flows, within countries, from rural

areas to cities and megalopolis within countries, but also from

country to country

Massive increase of the competition at every level (regional,

country, cities, companies and organizations, people): hrarsh

regime of selection of the best, fight for survival in a global world


Reasons for corporate management

Three majors phenomenon are heavily contributing to drastic and

rapid changes in the environment of most companies

The globalization of the economies

The acceleration and increased cost of technological change

The Internet

As the environment is changing quickly, companies are put under

pressure to ensure that their strategies are adapted to the new

environment and allow them to take chance from – rather suffering

from – the two new factors

These three factors contribute in making strategic management more

necessary than ever


Impact of globalization on Strategic Management

Not too long ago, a business corporation could be successful by

focusing only on making and selling goods and services within its

national boundaries. International considerations were minimal.

Profits earned from exporting products to foreign lands were

considered frosting on the cake but not really essential to corporate

success.

Today, everything has changed. Globalization, the

internationalization of markets and corporations, has changed the

way modern corporations do business.

To reach the economies of scale necessary to achieve the low

costs, and thus the low prices, needed to be competitive,

companies are now thinking of a global (worldwide) market

instead of a national market.

Ex. Nike and Reebok manufacture their athletic shoes in various countries

throughout Asia for sale on every continent.


Corporate and business strategies

Any company is put under the pressure of a global competition

If it is a “nomad” firm (active in an industry open to global

competition), the company must confront every day with the best-in-

class competitors. It must be competitive.

If it a “protected” form, (active in an industry apparently only national

or local), the company must understand that most likely, sooner or

later, this industry will change nature and be opened to the world

competition. It must work actively on its competitiveness otherwise it

could be rapidly eliminated from its market by the entry of a new

competitor enjoyed must higher competitiveness thanks to better mix

of the cost of factors or specific competitive advantage.

The only way to strengthen its muscle for a firm is to go where the

battle is, to confront with the competition by entering new

markets and compete against the leaders in their respective

international markets


Strategic Management

Directional Strategy

7 ESC Bretagne Brest - Globalization and Corporate Strategies

Strategies

Business firms use all 3 types of

strategy simultaneously.

A hierarchy of strategy is the

grouping of strategy types by

level in the organization.

This hierarchy of strategy is a

nesting of one strategy within

another so that they complement

and support one another.

Functional strategies support

business strategies, which in

turn, support the corporate

strategy.


Corporate, Business, Functional strategies


Corporate strategy

Business strategy (policy)

Functional strategies

Strategies

Corporate strategy Corporate strategy describes a company’s overall direction in terms of its

general attitude toward growth and the management of its various businesses

and product lines.

Corporate strategies typically fit within the 3 main categories of stability,

growth and retrenchment

Business strategy Business strategy usually occurs at the business unit or product level, and it

emphasizes improvement of the competitive position of a corporation’s

products or services in the specific industry or market segment served by that

business unit.

Business strategies may fit within 2 overall categories of competitive or

cooperative strategies.

Functional strategy Functional strategy is the approach taken by a functional area to achieve

corporate and business unit objectives and strategies by maximizing resource

productivity.

It is concerned with developing and nurturing a distinctive competence to

provide a company or business unit with a competitive advantage.


Strategy Formulation

Corporate Strategy

Competitive Strategy

Competitive Tactics

Cooperative Strategy


Porter’s Competitive Strategies

Competitive Strategy raises the following questions:

Should we compete on the basis of low cost (and thus price), or

should we differentiate our products or services on some basis

other than cost, such as quality or service?

Should we compete head to head with our major competitors for

the biggest but most sought-after share of the market, or should

we focus on a niche in which we can satisfy a less sought-after but

also profitable segment of the market?

Michael Porter proposes 2 “generic” competitive strategies for

outperforming other corporations in a particular industry: lower cost

and differentiation.

These strategies are called generic because they can be pursued

by any type or size of business firms, even by not-for-profit

organizations.



Lower cost strategy is the ability of a company or a business unit to

design, produce, and market a comparable product pore efficiently

than its competitors.

Differentiation strategy is the ability to provide unique and superior

value to the buyer in terms of product quality, special features, or

after-sale service.

Porter further proposes that a firm’s competitive advantage in an

industry is determined by its competitive scope, that is, the breadth

of the company’s or business unit’s target market.

Before using 1 of the 2 generic competitive strategies (lower cost or

differentiation), the firm or unit must choose the range of product varieties

it will produce, the distribution channels it will employ, the types of buyers

it will serve, the geographic areas in which it will sell, and the array of

related industries in which it will also compete.

This should reflect an understanding of the firm’s unique resources.





Simply put, a company or business unit can choose a broad target

(that is, aim at the middle of the mass market) or a narrow target

(that is, aim at a market niche).

Combining these 2 types of target markets with the 2 competitive

strategies results in the 4 variations of generic strategies depicted in

Figure 5-4.

When the lower cost and differentiation strategies have a broad

mass market target, they are simply called cost leadership and

differentiation.

When they are focused on a market niche (narrow target),

however they are called cost focus and differentiation focus.

Although research does indicate that established firms pursuing

broad-scope strategies outperform firms following narrow-scope

strategies in terms of ROA, new entrepreneurial firms have a

better chance of surviving if they follow a narrow-scope over a

broad-scope strategy.



Cost leadership is a low-cost competitive strategy that aims at the

broad mass market and requires “aggressive construction of

efficient-scale facilities, vigorous pursuit of cost reductions from

experience, tight cost and overhead control, avoidance of marginal

customer accounts, and cost minimization in areas like R&D, service,

sales force, advertising, and so on.”

Because of its lower cost, the cost leader is able to charge a lower

price for its products than its competitors and still make a satisfactory

profit.

Ex. Wal-Mart, Southwest Airlines, Ryanair, Timex

It may also decide to sell at a high price level, although its cost

structure is relatively low

Ex. Apple in Tablet business



Cost leadership

Having a low-cost position also gives a company or business unit

a defense against rivals. Its lower costs allow it to continue to earn

profits during times of heavy competition.

Its high market share means that it will have high bargaining power

relative to its suppliers (because it buys in large quantities).

Its low price will also serve as a barrier to entry because few new

entrants will be able to match the leader’s cost advantage.

As a result, cost leaders are likely to earn above-average returns on

investments.



Differentiation is aimed at the broad mass market and involves the

creation of a product or service that is perceived throughout the

industry as unique.

The company or business unit may then charge a premium for

its products.

This specialty can be associated with design or brand image,

technology, features, dealer network, or customer service.

Differentiation is a viable strategy for earning above-average

returns in a specific business because the resulting brand loyalty

lowers customers’ sensitivity to price. Increased costs can usually

be passed on to the buyers.



Differentiation

Buyer loyalty also serve as a barrier – new firms must develop

their own distinctive competence to differentiate their products in

some way in order to compete successfully.

Ex. Mercedes-Benz, Nike, Apple

Research does suggest that a differentiation strategy is more likely

to generate higher profits than is a low-cost strategy because

differentiation creates a better entry barrier.

A low-cost strategy is more likely to generate increases in market

share.



Cost focus is a low-cost competitive strategy that focuses on a

particular buyer group or geographic market and attempts to serve

only this niche, to the exclusion of others.

In using cost focus, the company or business unit seeks a cost

advantage in its target segment.

The cost focus strategy is valued by those who believe that a

company or business unit that focuses its efforts is better able to

serve its narrow strategic target more efficiently than can its

competition.

It does, however, require a tradeoff between profitability and

overall market share.



Differentiation focus, like cost focus, concentrates on a particular

buyer group, product line segment, or geographic market.

In using differentiation focus, the company or business unit seeks

differentiation in a targeted market segment.

This strategy is valued by those who believe that a company or a

unit that focuses its efforts is better able to serve the special needs

of a narrow strategic target more effectively than can its

competition.

Ex. Casey’s General Stores creating stores in small countryside cities




IV –

Str

ate

gy F

orm

ula

tio

n

imitate

Selection process for a competitive strategy


Cost advantage Differentiation advantage

Broad Market approach (global market)

Narrow Market approach (niche market)

Strategy Formulation

Business Strategy

Directional strategy

Portfolio strategy

Parenting strategy


Corporate, Business, Functional strategies


Corporate strategy

Business strategy (policy)

Functional strategies


Just as every product or business unit must follow a business

strategy to improve its competitive position, every corporation must

decide its orientation toward growth by asking the following 4

questions:

1. Should we expand, cut back, or continue our operations

unchanged?

2. Should we concentrate our activities within our current industry

or should we diversify into other industries?

3. If we want to grow and expand nationally and/or globally

4. Should we do so through internal development or through

external acquisitions, mergers, or strategic alliances?



A corporation's directional strategy is composed of 3 general

orientations (sometimes called grand strategies):

1. Growth strategies expand the company's activities.

2. Stability strategies make no change to the company's current

activities.

3. Retrenchment strategies reduce the company's level of

activities.

Having chosen the general orientation (such as growth), a

company's managers can select from several more specific

corporate strategies such as concentration within 1 product

line/industry or diversification into other products/industries. (See

Figure 6-1.)

These strategies are useful both to corporations operating in only 1

industry with 1 product line and to those operating in many industries

with many product lines.




Selection process for the business strategy


Growth Strategy

Directional

Strategy

Retrenchment

Strategy

Stability Strategy

Step 1


Growth Strategies

Concentration

Vertical growth

Horizontal growth

Diversification Strategies

Concentric (related) diversification

Conglomerate (unrelated) diversification



Growth Strategies

By far the most widely pursued corporate directional strategies

are those designed to achieve growth in sales, assets, profits, or

some combination.

Companies that do business in expanding industries must grow to

survive. Continuing growth means increasing sales and a chance to take

advantage of the experience curve to reduce the per-unit cost of products

sold, thereby increasing profits.

This cost reduction becomes extremely important if a corporation's

industry is growing quickly and competitors are engaging in price wars in

attempts to increase their shares of the market.

Firms that have not reached "critical mass" (that is, gained the

necessary economy of large-scale production) will face large losses

unless they can find and fill a small, but profitable, niche where higher

prices can be offset by special product or service features.



A corporation can grow internally by expanding its operations both

globally and domestically, or it can grow externally through

mergers, acquisitions, and strategic alliances.

A merger is a transaction involving 2 or more corporations in which

stock is exchanged, but from which only 1 corporation survives.

Mergers usually occur between firms of somewhat similar size and

are usually "friendly." The resulting firm is likely to have a name

derived from its composite firms.

An acquisition is the purchase of a company that is completely

absorbed as an operating subsidiary or division of the acquiring

corporation.

Acquisitions usually occur between firms of different sizes and can be

either friendly or hostile. Hostile acquisitions are often called takeovers. A

strategic alliance is a partnership of 2 or more corporations or business

units to achieve strategically significant objectives that are mutually

beneficial.



The 2 basic growth strategies are concentration on the current

product line(s) in one industry and diversification into other product

lines in other industries.

Concentration

If a company's current product lines have real growth potential,

concentration of resources on those product lines makes sense as

a strategy for growth.

The 2 basic concentration strategies are vertical growth and

horizontal growth. Growing firms in a growing industry tend to

choose these strategies before they try diversification.



Vertical Growth

Vertical growth can be achieved by taking over a function

previously provided by a supplier or by a distributor. The company,

in effect, grows by making its own supplies and/or by distributing

its own products. This may be done in order to reduce costs, gain

control over a scarce resource, guarantee quality of a key input, or

obtain access to potential customers. This growth can be achieved

either internally by expanding current operations or externally

through acquisitions.

Henry Ford, for example, used internal company resources to build his

River Rouge Plant outside Detroit. The manufacturing process was

integrated to the point that iron ore entered 1 end of the long plant and

finished automobiles rolled out the other end into a huge parking lot.



Vertical Growth

Vertical growth results in vertical integration—the degree to which

a firm operates vertically in multiple locations on an industry's

value chain from extracting raw materials to manufacturing to

retailing.

More specifically, assuming a function previously provided by a

supplier is called backward integration (going backward on an

industry's value chain).

Ex. Rubber plantations for Michelin

Assuming a function previously provided by a distributor is

labeled forward integration (going forward on an industry's

value chain).

Ex. First Stop network for Bridgestone

The firm, in effect, builds on its distinctive competence by

expanding along the industry's value chain to gain greater

competitive advantage.



Horizontal growth

Horizontal growth can be achieved by expanding the firm's

products into other geographic locations and/or by increasing the

range of products and services offered to current markets.

In this case. the company expands sideways at the same location

on the industry's value chain.

A company can grow horizontally through internal development

or externally through acquisitions or strategic alliances with

another firm in the same industry.



Horizontal growth

Horizontal growth results in horizontal integration—the degree to

which a firm operates in multiple geographic locations at the same

point in an industry's value chain.

Horizontal integration for a firm may range from full to partial

ownership to long-term contracts.

Ex. KLM, the Dutch airline, purchased a controlling stake (partial

ownership) in Northwest Airlines to obtain access to American and

Asian markets. KLM was unable to acquire all of Northwest's stock

because of U.S. government regulations forbidding foreign ownership

of a domestic airline (for defense reasons).

Ex. At a later stage Air France acquired KLM and created the n°1

airline in Europe operating from two hubs, Paris and Amsterdam




When an industry consolidates and becomes mature, most of the

surviving firms have reached the limits of growth using vertical and

horizontal growth strategies.

Unless the competitors are able to expand internationally into

less mature markets, they may have no choice but to diversify

into different industries if they want to continue growing.

The 2 basic diversification strategies are concentric and

conglomerate.

Concentric (Related) Diversification

Conglomerate (unrelated) Diversification





conglomerate.


Growth through concentric diversification into a related

industry may be a very appropriate corporate strategy when a

firm has a strong competitive position but industry

attractiveness is low.

By focusing on the characteristics that have given the

company its distinctive competence, the company uses those

very strengths as its means of diversification. The firm

attempts to secure strategic fit in a new industry where the

firm's product knowledge, its manufacturing capabilities, and

the marketing skills it used so effectively in the original

industry can be put to good use.





conglomerate.


The corporations products or processes are related in some

way:

They possess some common thread.

The search is for synergy, the concept that 2 businesses

will generate more profits together than they could

separately.

The point of commonality may be similar technology,

customer usage, distribution managerial skills, or product

similarity.





conglomerate.


The firm may choose to diversify concentrically through either

internal or external means.

American Airlines, for example, has diversified both internally and

externally out of the unpredictable airline business into a series of

related businesses run by the parent company, AMR Corporation.

Building on the expertise of its SABRE Travel Information

Network it built a computerized reservations system for the

French high-speed rail network and for the tunnel under the

English Channel.




When management realizes that the current industry is

unattractive and that the firm lacks outstanding abilities or skills

that it could easily transfer to related products or services in other

industries, the most likely strategy is conglomerate

diversification—diversifying into an industry unrelated to its

current one

Rather than maintaining a common thread throughout their

organization, strategic manager who adopt this strategy are

primarily concerned with financial considerations of cash flow or

risk reduction.




When management realizes that the current industry is

unattractive and that the firm lacks outstanding abilities or skills

that it could easily transfer to related products or services in other

industries, the most likely strategy is conglomerate

diversification—diversifying into an industry unrelated to its

current one

A cash-rich company with few opportunities for growth in its industry

might, for example, move into another industry where opportunities are

great but cash is hard to find.

Another instance of conglomerate diversification might be when a

company with a seasonal and, therefore, uneven cash flow purchases

a firm in an unrelated industry with complementing seasonal sales that

will level out the cash flow.




Growth Strategy

Directional

Strategy

Retrenchment

Strategy

Stability Strategy

Step 1

Concentration

Vertical

Horizontal

Diversification

Concentric

Conglomerate

Step 2

Internal / External Growth

International Growth

Strategies




Growth Strategy

Directional

Strategy

Retrenchment

Strategy

Stability Strategy

Step 1

Concentration

Vertical

Horizontal

Diversification

Concentric

Conglomerate

Step 2 Step 3

Domestic

International

Domestic

International



International entry options

Exporting

Licensing

Franchising

Joint Ventures

Acquisitions

Green-field development

Production sharing

Turnkey operations

BOT (Built, Operate, Transfer) concept

Management contracts




In today's world, growth usually has international implications.

Research indicates that going international is positively associated with

firm profitability.

A corporation can select from several strategic options the most

appropriate method for it to use in entering a foreign market or

establishing manufacturing facilities in another country. The

options vary from simple exporting to acquisitions to management

contracts.


Source : Strategic Management – David Hunger / Thomas Wheelen



Some of the more popular options for international entry are as

follows:

Exporting:

A good way to minimize risk and experiment with a specific

product is exporting, shipping goods produced in the company's

home country to other countries for marketing

The company could choose to handle all critical functions itself, or

it could contract these functions to an export management

company.

Exporting is becoming increasingly popular for small businesses

because of the Internet, fax machines. 800 numbers. and

overnight air express services, which reduce the once

formidable costs of going international.




Licensing:

Under a licensing agreement, the licensing firm grants rights to another firm in the host country to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise.

This is an especially useful strategy if the trademark or brand name is well known, but the company does not have sufficient funds to finance its entering the country directly.

Anheuser-Busch uses this strategy to produce and market Budweiser beer in the United Kingdom, Japan, Israel, Australia. Korea, and the Philippines.

This strategy also becomes important if the country makes entry via investment either difficult or impossible.

The danger always exists, however, that the licensee might develop its competence to the point that it becomes a competitor to the licensing firm. Therefore, a company should never license its distinctive competence, even for some short-run advantage.




Franchising:

Under a franchising agreement, the franchiser grants rights to

another company to open a retail store using the franchiser's

name and operating system. In exchange, the franchisee pays the

franchiser a percentage of its sales as a royalty.

Franchising provides an opportunity for firms to establish a

presence in countries where the population or per capita spending

is not sufficient to support a major expansion effort.

Franchising accounts for 40% of total U.S. retail sales. Approximately

44% of U.S. franchisers, such as Toys "R" Us. are currently franchising

internationally while an additional 31% are planning to do so.




Joint Ventures:

The rate of joint venture formation between U.S. companies and

international partners has been growing 27% annually since 1985.

It is the most popular strategy used to enter a new country.

Companies often form joint ventures to combine the resources and

expertise needed to develop new products or technologies.

It also enables a firm to enter a country that restricts foreign

ownership.

The corporation can enter another country with fewer assets at

stake and thus lower risk.

A joint venture may be an association between a company and a

firm in the host country or a government agency in that country. A

quick method of obtaining local management, it also reduces the

risks of expropriation and harassment by host country officials.




Acquisitions:

A relatively quick way to move into an international area is through acquisitions—purchasing another company already operating in that area. Synergistic benefits can result if the company acquires a firm with strong complementary product lines and a good distribution network.

To expand into North America, the Swedish appliance maker, A.B. Electrolux, purchased the major home appliance operations of White Consolidated Industries and renamed the unit Frigidaire.

Research does suggest that wholly owned subsidiaries are more successful in international undertakings than are strategic alliances, such as joint ventures. This is one reason why firms more experienced in international markets take a higher ownership position when making a foreign investment.

In some countries, however, acquisitions can be difficult to arrange because of a lack of available information about potential candidates.



Stability Strategy

Pause/proceed with caution strategy

No change strategy

Profit strategy

Retrenchment Strategies

Turnaround strategy

Captive company strategy

Sell-out/Divestment strategy

Bankruptcy/Liquidation strategy




Growth Strategy

Directional

Strategy

Retrenchment

Strategy

Stability Strategy

Step 1

Concentration

Vertical

Horizontal

Diversification

Concentric

Conglomerate

Step 2 Step 3

Domestic

International

Pause

No change

Profit

Turnaround

Sell-out

Bankruptcy

Domestic

International


The Value Chain and Corporate

Strategies


Value Chain Analysis

An industry Value Chain is a linked set of value-creating activities

beginning with basic raw materials coming from suppliers, moving on

to a series of value-added activities involved in producing and

marketing a product or service, and ending with distributors getting

the final goods into the hands of the ultimate consumer.

The focus of value chain analysis is to examine the corporation in the

context of the overall chain of value-creating activities, of which the

firm may be only a part.

Very few corporations include a product’s entire value chain

Ex. Ford Motor Company in its initial stage was a totally vertically

integrated firm

Another view at Value Chain consists in analyzing the firm’s own

value chain, set of its own activities creating value to the end

customer


Industry Value Chain Analysis

The Value Chain of most industries can be split into 2 segments,

upstream and downstream.

An industry can be analyzed in terms of the profit margin available at

any point along the value chain.

Ex. Auto industry generating most of revenue from financing,

insurance, after-service and repair, rather than car production

itself.


Industry Value Chain Analysis

In analyzing the complete value chain of a product, note that even if

a firm operates up and down the entire industry chain, it usually has

a primary field of expertise where its primary activities lie.

A company’s center of gravity is the part of the chain that is most

important to the company and the point where its greatest expertise

and capabilities lie – its core competencies.

According to Galbraith, a company’s center of gravity is usually the

point at which the company started. After a firm successfully

establishes itself at this point by obtaining a competitive advantage,

one of its first strategic moves is to move forward or backward along

the value chain in order to reduce costs, guarantee access to key

raw materials, or to guarantee distribution.

This process is called vertical integration.

Ex. Bridgestone and Michelin in rubber plantations


The Offer The Demand


Pro

ductio

n

Marketing mix Product mix

Channel mix

Communication mix Customer mix Enterprise

Pricing mix

Supply chain

Finance

Human Resource

Purchase

Suppliers Financing system Partners Administration Community


Marketing Strategy

Marketing strategy deals with pricing, selling, and distributing a

product. Using a market development strategy, a company or

business unit can

(1) capture a larger share of an existing market for current

products through market saturation and market penetration or

(2) develop new markets for current products.

Using the product development strategy, a company or unit can

(1) develop new products for existing markets or

(2) develop new products for new markets.


The offer of a company exist only as correspnding to a demand,

expressed or latent, from a set of consumers/users

Knowledge of consumer characteristics plays an extremely important

role in many marketing applications, such as defining the market for a

product or deciding on the appropriate techniques to employ when

targeting a certain group of consumers

The use of market segmentation strategies mean targeting a brand only

to specific groups of consumers rather than to everybody- even if that

means that other consumers will not be interested or may choose to

avoid that brand.


Attempt of a definition

Determine homogeneous groups of potential consumers allowing

to prepare an offer corresponding to their expectations.

The various segmentation modes

Segmentation by the age, the revenue, the creeds, the occupation,

etc. (ex. The elder people)

Segmentation by the using conditions, application field of the

product, functionality of the product-service (ex. The 4WD drivers).

Segmentation by the expectations, the purchase behavior (ex. The

seeking the reassurance of after market service of a large

distributor chain).

Segmentation by the level of price (ex. The buyers of premium

range tires).


A market segment is a group / cluster of users / consumers sharing

similar expectations as regards the usage of our products similar

purchasing behavior

They will tend to purchase products

showing the same technical features,

at a similar range of price,

bearing a consistent image appealing to them,

through similar channels of distribution.

We may reach them through

A communication carrying a consistent message,

Identified consumer benefits,

Selected distribution channels,

Within a correct balance of PUSH / PULL approach,

At a price / performance ratio matching their expectations,

With an image valorizing their ego.


Market segmentation

Consumers within a segment are similar to one another in terms of

product needs and these needs are different from consumers in

other segments

Important differences among segments can be identified

The segment is large enough to be profitable

Consumers in the segment can be reached by an appropriate

marketing mix

The consumers in the segment will respond in the desired way to the

marketing mix designed for them

In many cases, it makes a lot of sense to target a number of market

segments. The likelihood is that no one will fit any given segment

description exactly, and the issue is whether or not consumers differ

from our profile in ways that will affect the chances of their adopting

the products we are offering.


Source Consumer Behaviour – A European Perspective / Michael R. Solomon

Product

Marketing is driving the product design and conception process in order to ensure match between the offer and the demand Ex. Avoid valueless technical features

Price

Determine the right price for the offer to meet the demand Ex. Avoid insolvent demand

Place

Organize the distribution channel

Ensure that the product is available at any moment at the place where the customer expects it to be

Promote

Present the offer, its features and benefits to the distribution and the final customer

Generate intention to purchase and transform intention into purchase

People

Develop the required competencies

Motivate for performance



Enterprise Products

Services

Prices

Sales Promotion

Advertising

Sales Force

Public Relations

Direct Marketing

Telemarketing,

Internet

Intermediaries Consumers

Offer Mix

Communication mix

At the international, the problem is the same as on the domestic market.

The problem to be solved is the one of presenting an offer adapted to targeted consumers

through various channels and insuring their satisfaction. However the environment is more

complex and riskier.

Graphique d’après Kotler & Dubois

Demand

Could be latent and unexpressed

EX. Walkman

Tracing and understanding demand is the key challenge for any

enterprise

Selection of our future customer base

Which type of customer

Ex. The patient of an hospital is a customer for the hospital service offer

Ex. The citizen is a customer for the services offered by civil servants

Which country and/or region and/or city

Which segment

See. Definition of a segment

Definition of the proper balance among our customer groups

Product life cycle

Market maturity

Risks of new entrants and increased competition on some groups


The offer is a complex set of product services and additional benefits for the consumer - user

It can be tangible - material or intangible - virtual

It can be a product and / or a service

It can be monetized or free

The benefits for the consumer-user may come from several sources

Usability and functions of the product

Measurable performance

Additional technical features

Endurance and alleged durability

Reassurance and guaranty

Image and self consciousness

Design and aesthetics

Etc.


The channel is the route for the offer to reach the consumer

It is composed of a sometimes large number of intermediaries who sell and resell the product or

service until it is sold finally to the consumer

Selecting the proper channel is a key strategic decision. It has a high impact

On the final cost of the product for the consumer

On the communication process and the message finally conveyed to the consumer (image,

instructions for use, etc.)

On the conditions of services, first use, maintenance and repair

Etc.


Producer Consumer

Importer Wholesaler Secondary wholesaler

Retailer

Cooperative National market

Wholesaler

“We may reach them through …/… selected distribution channels”

Marketing Strategy

The choice of the distribution channel is strategic.

Should a company use distributors and dealers to sell its products or

should it sell directly to mass merchandisers? Using both channels

simultaneously can lead to problems.

Ex. In order to increase the sales of its lawn tractors and mowers, for

example, John Deere decided to sell the products not only through its

current dealer network, but also through mass merchandisers like Home

Depot. Deere's dealers, however, were furious. They considered Home

Depot to be a key competitor. The dealers were concerned that Home

Depot's ability to underprice them would eventually lead to their becoming

little more than repair facilities for their competition and left with

insufficient sales to stay in business.

Ex. Firestone tire sales through the Mass Merchandisers in the ‘70s,

leading to a ban by Tire Specialists.

In export activity, the selection of the channel that will aloow us to reach the

targeted customer is even more difficult than on domestic market. This

choice is a key condition for the success of the whole program.


What are the criteria to select the proper distribution channel, in

line with our corporate objectives?

Related market segment, profile of consumers reached,

purchasing pattern

Accessible market share, sales potential of the channel

Price structure, sell-out price level

Cost structure, total cost of access to the market, including logistic

costs, total margin, central rebates, cost of sales support and

promotion

Professionalism, ability to serve the product at the required level

Restrictions to entry, control by competitors, cycle time for

homologation (référencement)

Partnership possibilities, expectations from the channel and ability

to serve by the manufacturer

Selection of the distribution channel


Marketing Strategy

There are numerous other marketing strategies. For advertising and

promotion, for example, a company or business unit can choose between a

"push" or a "pull" marketing strategy.

Many large food and consumer products companies in the United States and

Canada have followed a push strategy by spending a large amount of

money on trade promotion in order to gain or hold shelf space in retail

outlets. Trade promotion includes discounts, in-store special offers, and

advertising allowances designed to "push" products through the distribution

system.

The Kellogg Company recently decided to change its emphasis from a push

to a pull strategy, in which advertising "pulls" the products through the

distribution channels. The company now spends more money on consumer

advertising designed to build brand awareness so that shoppers will ask for

the products.

Research has indicated that a high level of advertising (a key part of a pull

strategy) is most beneficial to leading brands in a market.


In a PULL mode of market approach, a producer will create a strong

direct link to its end-user / consumer base in order to generate the

purchase decision directly. The distribution network is therefore

confined to a passive-neutral role of supplier of the logistic (product

availability) and eventually after-sales services.

“Pure” example is the sales of cigarettes

In a PUSH mode, the producer relies on the distribution network to

promote the sales of its products or services to the targeted end-

users / consumers and to generate the purchase decision. In this

mode the producer will tend to establish a strong partner link with its

selected distribution network.

“Pure” example is the sales of medicine

Push / Pull marketing


A producer of a product or a service will generally implement a

suitable balance between Push and Pull marketing.

If a producer has enough resource to create a strong, widely

known brand, he will generally tend to gain higher control on its

distribution channels (sell-out price level, margin, promotion

periods and package, sales talk, etc.) and therefore reduce their

role as the promoter of the product.

In case of products requiring services that only the distributor is

able to supply, the producer has no other choice than keeping a

strong component of PUSH policies in its marketing program.




In most cases companies operating at the early stage of their export

program are compelled to use a PUSH marketing strategy.

The key challenge is their ability to control the nature of their

presence on the market

What is their real positioning

What is their image and how are their products perceived by the

consumers

How far re they able to have a direct relationship with the final consumer

in order to track properly his/her expectations and evolution of

consumption pattern

A company should always try its best to reach a balance between

PUSH and PULL marketing, as soon as possible

Need to reduce dependency on distribution

Need to create its own customer base

Need to feed a rich customer data base


It is an extremely complex set of information, messages and

incentives delivered through a multiplicity of relays and media

Information about the enterprise, its history, social values, people, etc.

Advertising about its product benefits and competitive advantages

Information about the product technical characteristics, composition, instructions

for use

Information about related services, after sales services, maintenance and repair

Information about its distribution channel and availability

Justification about its price positioning and cost-benefit

Promotion and creation of incentives to generate purchase

Loyalty programs and invitation to repurchase

The relays are multiple

Media: press, pamphlets, couponing, radio, TV, Internet, billboard, stickers,

phoning - letter - mail - sms, etc.

Sales force, sales talk, seminars, customer visits

Brochures and documentation, trade shows - exhibitions

Public Relation


Building brand value

Creating value

Advertising awareness

Creating a strong image

Consistency of message

Meet consumers expectations, ego

build up

High positioning in the price segment

Quality marketing

Product

Distribution and correlated

services

After sales services, warranty

policy

Cost of usage

Performance / cost ratio

Price control

Brand power

Playing smartly with purchase

opportunity effect

Destroying value

Inadequate product functionality,

performance, reliability

Excessive cost of usage

Insufficient warranty and after sales

services

Mismatch between advertising

message and target audience

Inadequate media

Mismatch between distribution

channel and targeted consumer

segment

Excessive promotional activity:

◦ Too frequent

◦ Too high offers

Uncontrolled pricing across

channels (price battling)


Marketing Strategy

When pricing a new product, a company or business unit can follow

1 of 2 strategies.

For new-product pioneers, skim pricing offers the opportunity to

"skim the cream" from the top of the demand curve with a high price

while the product is novel and competitors are few.

Penetration pricing, in contrast, attempts to hasten market

development and offers the pioneer the opportunity to use the

experience curve to gain market share with a low price and dominate

the industry.

Depending on corporate and business unit objectives and strategies,

either of these choices may be desirable to a particular company or

unit. Penetration pricing is, however, more likely than skim pricing to

raise a unit's operating profit in the long term.


The price is frequently much more than the cash out of the customer.

It is determined by many factors. It is a mix

Perceived quality of the product (Ex. French Cars)

Hidden quality of the product (Ex. German Cars)

Additional features as far as the customer would evaluate them (Ex.

Multiple programs on a washing machine)

Image of the product - brand (Ex. Dolce & Gabana watches)

Delivery and availability conditions (Ex; Last minute toy purchase at

Xmas)

Additional offered services (Ex. Darty delivery and set up)

Warranty conditions - reassurance (Ex. Darty - Le contrat de confiance)

Two methods for fixing the price

Cost plus pricing

Market minus pricing


Production

Suppliers Storage and transport

Advertising & Promotion

Price waterfall in distribution

The market

Competitors

Cost Plus

Market minus

Market Minus

A decision is made as regards to sales price level to end-user / consumer without consideration for the production cost for the product.

The marketing mix is fixed to reach higher corporate objectives by selecting the targeted market segment, the distribution channel, the sell-out and sell-in price level, the volume of selling and promotional expenses, etc.

Starting from the sell-out price, all relevant costs are deducted down to the ex-factory price level.

Plants are requested to output the product in pre-defined characteristics and performance level at the requested price. It is up to them to find the productivity and process gains that will allow them to reach this cost target.

Cost plus

Plants determine the best price level that they can reach for the product meeting the required performance target.

All costs and expenses are then piled up on the ex-works price.

The bottom sell-in price is then determined, taking into consideration the desired gross profit and taking into consideration of the sell-out level or not.

The company sees if it can sell at this price.

Most companies operating in Cost Plus mode are dead, except if they belong to the public sector…



List price to consumer Net selling price to consumer Net purchase price by dealer

Maker COGS

Brand A Brand B Brand C Brand D

100

115

80

55

100

90

80

70

60

50

40

90

70

45

115

105

85

65

45

105

90

60

40

Consumer Tires

Premium

Standard

Economy

Budget

Michelin

Goodyear

Kleber

Dunlop

Uniroyal

Barum

Kumho

Hankook

Yokohama

Other

Other

Other

Operation

Cost

Cost

Performance

Initial

Cost

Price only

Michelin

Goodyear

Dunlop

Continental

Hankook Pirelli

Barum

Other

Other

Commercial Tires

Toyo

100

85

75

65

50

100

90

80

72

65

Bridgestone Bridgestone Continental Pirelli

Firestone

First Stop Toyo

Norauto

Firestone


The decision for positioning the offer is a key strategic decision:

It means deciding at which level of the scale of prices practiced on

the market we want to sell our products/services to the final

consumer

It drives the profitability of the company

I depends only marginally on the cost of the product

It depends mostly on the value of the offer for the consumer:

Brand power

Product characteristics and functionality

Quality and pertinence of the communication

Credibility of the maker, the product

Additional non-sold, services

The chosen positioning must be supported by the global content of

the value proposition of the offer

It must be consistent with the total marketing mix

It must be defendable on the long term

Positioning


Positioning & Pricing


• Each market segment has its own volume and price range

• Lower Prices do not necessarily mean higher volume

• Position 1 : top end product, priced at high end of segment, offering a lot of

value to justify the price

• Position 2 : top end product, priced at competitive level, looking for market

share in its segment

• Position 3 : top end product wrongly priced that has fallen into a lower

segment. It now becomes the higher priced product in this segment,

competes against other competitors and may lose volume.

100 %

50% % of market

Hi-end

Medium-end

Low-end

Budget-end

1

2 3

Recently many

markets take the

shape of an egg

cup:

Increasing demand

of premium and

luxury products,

declining demand for

standard products,

increasing demand

for cheap , low cost

products

Three possible strategies

Single price everywhere, assuming the risk of neglecting the

differences in living standards

Example: Sales of CD on Internet; Louis Vuitton or Swatch

pricing

A price adapted to the demand of each market, assuming the risk

of parallel market

Example: car sales in Europe

A price taking into account the cost structure on each market

Example: sales of bulky products, sales into the French DOM


Source Kotler & Dubois

Pricing

Brands need to be positioned by segment

Once positioned, target competitor(s) identified

Be careful of price changes by target competitors, as they may change segment.

100%

50% % of

market

Hi-

end

Low-

end

Budget

-end

BS

FS

Dayton /

PB

Budget

Competitors in each product

category for each country

Country 1 Country 2 Country 3

MI / GY MI / Conti MI / PI

MI Cl./

Dunlop

Kléber Hankook Kléber

Viking India Korea

MI Cl./

GY

MI Cl./

GY


Pricing across Europe

Eur.

Target

Retail

Price

Retail

Price

Spread

Net Net

Price

Spread

Country 1 Country 2 Country 3

Target GP

Distributor A

Distributor B

Distributor C

Distributor D

Net purchase price

All incentives and promotions deducted



Risks in Competitive Strategies

No one competitive strategy is guaranteed to achieve success,

and some companies that have successfully implemented one of

Porter’s competitive strategies have found that they could not

sustain the strategy.

Each of the generic strategies has its risks.

For example, a company following a differentiation strategy must

ensure that the higher price it charges for its higher quality is not priced

too far above the competition, otherwise customers will not see the

extra quality as worth the extra cost.

This is what Is meant by cost proximity.

Ex. Michelin in Europe


Source : Strategic Management – David Hunger / Thomas Wheelen

The Internationalization process:

the steps to Export


Agenda of Export section


1. The Strategic Steps

2. The techniques of International Trade

3. The Impact of export on corporate offer, operations and organization

4. Conclusion: another business as usual

What are the reasons that lead a company to start exporting?

Growth, capturing new markets

Small or saturated home market

Keep up with their competitors

Maturity of domestic market

To diversify their offer

Reduce the cost: economies of sale, acquire critical mass

Take advantage of lower taxes in other country

Identified a niche in the other market and opportunity to cover

Surplus of production in their home market

Avoid dependency on one market, spread the risk

Better supply chain management

Reduce customs and taxes

Main long-term reason: grow, gain distinctive competencies,

strengthen resources and organization: be prepared for the invasion


If a company is operating in an industry populated with NOMAD

firms, it must grow international to gain power and competitiveness

to be able to resist when a foreign new entrant will penetrate its

market

Not a matter of “if”: in a globalized world a nomad firm from

abroad will certainly attempt to capture its market

Only SEDENTARY firms, by definition, will not fear the

international competition… until its industry moves into the open

area and becomes a branch belonging to nomad firms

It does not mean that they should not adopt a growth strategy on

international market…


Internationalization

Trying a definition

Effort to increase the size of one’s market through the conquest of

foreign markets.

Sell existing products to an enlarged customer base

Development of a specific international marketing

Adapt the offer to specific requirements of various markets

Develop purchase from foreign countries

International Supply Chain

International subcontracting, seek for better costs

Organizational change aiming at better coordinating the activity in

several countries

Take into account the legal, linguistic and other differences

Organization of an export department, of a foreign representative or

franchised distributor

Organization of the international Supply Chain


I. The Strategic Steps


2 - The Strategic Steps: A methodology for study


Confirmation of project objectives

Check market size and potential

Check barriers to entry

Analysis of environment

Detailed market and competitive analysis

Feasibility study, Validation of expected ROI

Implementation phase

Design implementation plan

marketing plan

organization

logistics

Others

Decision

to go

Corporate objectives and marketing objectives

Information phase

Analysis phase

Decision phase

Action phase

1- Environment scanning

External / Internal

The diagnostic


1 - The Strategic Steps: Diagnostic

Drive the internal and external diagnostic

Our Strengths and Resources

Our Weaknesses and Limitations

Our Competitive Advantage

Product - Innovation - Distinctive features

Brand - Image - Communication - Promotion

Price

Channel and partners

Our Organization

Our Production Tool - Global Competitiveness

Our Supply Chain - Effective Customer Response

Our Financial Resources


See Competitive advantage

Core competencies and Distinctive Competencies

Resources are the organization's assets and are thus the basic

building blocks of the organization. They include physical assets,

such as plant, equipment, and location, human assets, in terms of

the number of employees and their skills, and organizational

assets, such as culture and reputation.

Capabilities refer to a corporation’s ability to exploit its resources.

They consist of business processes and routines that manage the

interactions among resources to turn inputs into outputs.

For example a company’s marketing capability can be based on

the interaction among its marketing specialists, information

technology, and its financial resources.

A capability is functionally based and is resident in a particular

function, such as marketing capabilities, manufacturing capabilities

and human resource management capabilities.


Core competencies and Distinctive Competencies

A competency is a cross-functional integration and coordination of

capabilities.

For example, a competency in new product development in one division

of a corporation may be the consequence of integrating MIS capabilities,

marketing capabilities, R&D capabilities, and production capabilities within

the division.

A core competency is a collection of competencies that cross

divisional boundaries, are widespread within the corporation, and is

something that a corporation can do exceedingly well. Thus new

product development would be a core competency if it goes beyond

one division.

FedEx has a core competency in its application of information technology

to all of its operations.


Core competencies – A definition

Core competencies

Those assets, people, knowledge or expertise that constitute our

strengths and ensure our competitiveness on the market.

The specific profession in which we excel as a specialist.

A core competency is something that a corporation can do

exceedingly well. It is a key strength. It may also be called a core

capability because it includes a number of constituent skills.

For example, a core competency of Avon Products is its expertise in door-

to-door selling. FedEx has a core competency in information technology.

Although it is typically not an asset in the accounting sense, a core

competency is a valuable resource: it does not “wear out" with

use. In general, the more core competencies are used, the more

refined they get and the more valuable they become.


Core Competencies

A company must continually reinvest in its core competencies or risk

losing them. When these competencies or capabilities are superior to

those of the competition, they are called distinctive competencies.

General Electric. for example, is well known for its distinctive competency

in management development. Its executives are sought out by other

companies hiring top managers.

Bridgestone has a distinctive competency in managing production plants:

especially their 10 plants in Japan are a competitive advantage

recognized by their competitors (production efficiency, quality, flexibility)


Distinctive Competencies

To be considered a distinctive competency, the competency must

meet 3 tests:

1. Customer Value: It must make a disproportionate contribution to

customer-perceived value.

2. Competitor Unique: It must be unique and superior to competitor

capabilities.

3. Extendibility: It must be something that can be used to develop

new products/services or enter new markets.

Even though a distinctive competency is certainly considered a

corporation's key strength, a key strength may not always be a

distinctive competency. As competitors attempt to imitate another

company's competence in a particular functional area, what was once a

distinctive competency becomes a minimum requirement to compete in

the industry. Even though the competency may still be a core

competency and thus a strength, it is no longer unique.



Where do these competencies come from?

A corporation can gain access to a distinctive competency in 4

ways:

1. It may be an asset endowment, such as a key patent, coming

from the founding of the company—Xerox grew on the basis of

its original copying patent.

2. It may be acquired from someone else—Whirlpool bought a

worldwide distribution system when it purchased Philips's

appliance division.

3. It may be shared with another business unit or alliance

partner—Apple Computer worked with a design firm to create

the special appeal of its Apple II and Mac computers.

4. It may be carefully built and accumulated over time within the

company—Honda carefully extended its expertise in small

motor manufacturing from motorcycles to autos and lawn-

mowers.



For core competencies to be distinctive competencies, they must

be superior to those of the competition. As more industries become

hypercompetitive, it will be increasingly difficult to keep a core

competence distinctive. These resources are likely either to be

imitated or made obsolete by new technologies.

For a functional strategy to have the best chance of success, it

should be built on a distinctive competency residing within that

functional area. If a corporation does not have a distinctive

competency in a particular functional area, that functional area

could be a candidate for outsourcing.


Competitive advantage – a definition

Competitive advantage

Those competencies which belong specially to us

That are defendable over the long term

That cannot be easily imitated or acquired by our competitors


A model of competitive advantage


Resources

Distinctive

competencies

Capabilities

Cost advantage or

Differentiation advantage Value creation

A competitive advantage exists when the firm is able to deliver the same

benefits as competitors but at a lower cost (cost advantage) over its rivals,

or deliver benefits that exceed those of competing products (differentiation

advantage). Thus, a competitive advantage enables the firm to create

superior value for its customers and superior profits for itself.

Source: quickmba

Determining the sustainability of an advantage

Just because a firm is able to use its resources and capabilities to

develop a competitive advantage does not mean it will be able to

sustain it.

Two characteristics determine the sustainability of a firm’s distinctive

competency(ies) : durability and imitability

Durability is the rate at which a firm’s underlying resources and

capabilities (core competencies) depreciate or become obsolete.

New technology can make a company’s core competency obsolete or

irrelevant.



Two characteristics determine the sustainability of a firm’s distinctive

competency(ies) : durability and imitability

Imitability is the rate at which a firm’s underlying resources and

capabilities (core competencies) can be duplicated by others. To

the extent that a firm’s distinctive competencies gives it

competitive advantage in the marketplace, competitors will do what

they can to learn and imitate that set of skills and capabilities.

Competitors’ efforts may range from reverse engineering (taking apart a

competitor’s product in order to find out how it works), to hiring employees

from the competitor, to outright patent infringement.



A core competency can be easily imitated to the extent that it is transparent, transferable, and replicable.

Transparency is the speed with which other firms can understand the relationship of resources and capabilities supporting a successful firm’s strategy.

Ex. Gillette Sensor razor was very difficult to copy, even through reverse engineering

Transferability is the ability of competitors to gather the resources and capabilities necessary to support a competitive challenge.

Ex. It may be difficult for a wine maker to duplicate a French winery’s key resources of land and climate, especially if the imitator is located in Iowa

Replicability is the ability of competitors to use duplicated resources and capabilities to imitate the other firm’s success.

Ex. Wal-Mart ability to reduce costs and improve service level by cross-docking. Although they have basically the same type of stores and personnel, they manage their resources for maximum productivity.


Lesson learned

A strategy must be based on the company Strength, (distinctive

competencies and competitive advantage, if any), and

Opportunities.

Working hard on correcting weaknesses can allow you, to the best,

to attain an average level of performance, nothing likely to provide a

competitive edge.


2 -The Strategic Steps: A methodology for study

Selection of the targeted market Estimation of the present potential

Forecast of the future potential

Assessment of the potential market share

Assessment of provisional costs and profit

Estimation of the return on investments

Selection of the access mode Indirect export, Local export agent

Direct export, Foreign import agent

Sales of license rights, franchise, local manufacturing, management contract

Partnership, joint venture

Direct investment, delocalized production unit

Work out an international marketing plan Level of adaptation of the mix,

Expansion or adaptation of the product offer and the promotion

Pricing strategies for single price, adapted pricing, cost-plus local pricing, market minus pricing, control of the spread (parallel import, cannibalization)

Distribution channel: importer, wholesaler, retailer, direct sales, etc.

Organize logistics and services

Select an organization mode Export department

International division

The global firm


International Portfolio Analysis


IV –

Str

ate

gy F

orm

ula

tio

n

Selection of the

targeted country

Functional Strategy

Capitalizing on the company’s distinctive competencies, we will design the

Functional Strategies that will allow us to make our international expansion

program a success.

Functional strategy is the approach a functional area takes to achieve

corporate and business unit objectives and strategies by

maximizing resource productivity.

It is concerned with developing and nurturing a distinctive competence

to provide a company or business unit with a competitive

advantage.

Just as a multidivisional corporation has several business units, each

with its own business strategy, each business unit has its own set of

departments, each with its own functional strategy.


Functional Strategy

Functional strategy

Just as a competitive strategy may need to vary from 1 region of the

world to another, functional strategies may need to vary from region

to region.

When Mr. Donut expanded into Japan, for example, it had to

market donuts not as breakfast, but as snack food. Because the

Japanese had no breakfast coffee-and-donut custom, they

preferred to eat the donuts in the afternoon or evening. Mr. Donut

restaurants were thus located near railroad stations and

supermarkets. All signs were in English to appeal to the Western

interests of the Japanese.


3 - The Strategic Steps: Build a marketing plan

Although almost every function of the company is potentially

impacted by the international expansion, we will concentrate on the

marketing function, in this marketing plan.

Other functions potentially impacted could be:

Supply Chain and Logistics system: new warehouses, new

inventory systems, new transportation, etc.

Manufacturing: increased capacity, higher flexibility and

adaptability of the production facilities

Human Resource Management: hiring people from foreign

country, develop competencies and need for training, change the

company culture, etc.

Legal and Tax: master foreign country specific rules and practices

Information system: expand power of the system, new multi-

dimensional data base, new networks and security systems, etc.

The impact on other company functions will be examined later



Outline of a marketing plan

1. Executive summary

2. The challenge and corporate objectives

3. Situation analysis

4. Market Segmentation

5. Alternative marketing strategies and selected marketing strategy

Product

Price - Positioning

Distribution

Promotion

6. Short & Long-Term projections


Source: Adapted from quickmba



A high-level summary of the marketing plan

2. The challenge

Brief description of product to be marketed and associated goals, such as sales figures

and strategic goals


Company analysis

Goals

Focus

Culture

Strengths

Weaknesses

Market Share

Customer analysis

Number

Type

Value drivers

Decision process

Concentration of customer base for particular products





Competitor analysis

Market position

Strengths

Weaknesses

Market share

Collaborators - Partners

Subsidiaries

Joint ventures

Distributors

Etc.

Climate

PEST analysis

Political and legal environment

Economic environment

Social and cultural environment

Technological environment


See Analysis of the Competition


Analysis of the Competition

Which competition?

Direct competition: a very similar product offered with a similar marketing mix

Indirect competition (substitutable) A wooden product or a metallic product may compete against a plastic product

A PS3 console may compete against a Blue Ray DVD player

Local competition Fundamental important of the export cost price to compare with the market price set by local

competitors (or foreign competitors already established)

French competition Generally the multiplication coefficient is the same

If the Ex Works cost price is the same cost price delivered to local distribution is the same (except transport)

The difference will be made by

Quality

Service

Fundamental role of the local intermediary (importance of channel selection)

Foreign competition Where shouldn’t we go?

Ex. Monofilament fishing nets: we stop whenever we face Asiatic competition





• SWOT analysis: a SWOT analysis of the business environment can

be performed by organizing the environmental factors as follows:

• The firm’s internal attributes can be classed as strengths and

weaknesses

• The external environment presents opportunities and threats


Tracing our Strengths Tracing our Weaknesses

Tracing our

Opportunities

Make use our of

Strengths to take benefit

from Opportunities

Minimizing our

Weaknesses or Gaining

Competencies to take

benefit from

Opportunities

Tracing our

Treaths

Make use of our

Strengths to reduce the

Threats

Minimizing our

Weaknesses and reduce

Treaths by taking a

different course


Situational Analysis: SWOT Analysis

SWOT analysis should not only result in the identification of a

corporation’s distinctive competencies – the particular

capabilities and resources that a firm possesses and the superior

way in which they are used – but also in the identification of

opportunities that the firm is not currently able to take advantage

of due to a lack of appropriate resources.

It can be said that the essence of strategy is opportunity divided by

capacity.

An opportunity by itself has no real value unless a company has

the capacity (i.e. resources) to take advantage of that opportunity.

This approach, however, considers only opportunities and

strengths when considering alternative strategies.

By itself a distinctive competency in a key resource or capability

is no guarantee of competitive advantage. Weaknesses in other

resource areas can prevent a strategy from being successful.


SWOT

A strategy may be developed by using a firm's strengths to exploit the

opportunities that exist.

For example, a strong brand name may be used to extend a firm's

products into new markets.

It may also use these strengths to protect itself against threats;

for example, a retailer may use its finance to acquire key locations to

prevent a competitor buying them.

A firm may also want to protect itself against its weaknesses.

For example, it may try to find alternative suppliers to reduce an over-

reliance on a particular one; it may invest in a rebranding exercise to

reposition itself.

ESC Bretagne Brest - Globalization and Corporate Strategies 125 Source: Oxford University Press


4. Market segmentation

Segment 1 Description

Percent of sales

What they want

How they use the product

Support requirements

How to reach them

Acceptable price bracket

Price sensitivity


Percent of sales

What they want



Etc.




5. Selected marketing strategy

Discuss why the strategy was selected

Present the marketing mix decisions (4 P’s)

Product: The product decisions should consider the product’s advantages and how they will be leveraged. Product decisions should include Brand name

Quality

Scope of the product line

Warranty

Packaging

Price: Discuss pricing strategy, expected volumes and decisions for the following pricing variables List price

Discounts

Bundling

Payment terms and financing options

Leasing options


List price to consumerNet selling price to consumer

Net purchase price by dealer

Maker COGS


100

115

80

55

100

90

80

70

60

50

40

90

70

45

115

105

85

65

45

105

90

60

40



Maker COGS


100

115

80

55

100

90

80

70

60

50

40

90

70

45

115

105

85

65

45

105

90

60

40




Distribution (Place): decision variable include

Distribution channels, such as direct, retail, distributors &

intermediaries

Motivating the channel Ex. Distributor margins

Criteria for evaluating distributors

Logistics, including transportation, warehousing and order fulfillment

Promotion

Advertising, including how much and which media

Public relations

Promotional programs

Budget. Determine break-even point for any additional spending

Projected results of the promotional program




6. Short & Long-term projections

The selected strategy’s immediate effects, expected long-term results and

any special actions required to achieve them. This section may include

forecasts of revenues and expenses as well as the results of a break-even

analysis

Prepare the provisional Profit & Loss Account and determine the return on

investment

7. Conclusion



4 - The Strategic Steps: Deploy

Confirm targets to be achieved and calendar

Confirm the feasibility and return on investment through provisional

Profit & Loss Account

Launch deployment of the plan step by step

Control schedule and costs at each steps

Take corrective actions in case of deviation

Update plan through a rolling plan year on year


Strategic Plan calendarized

by semester


Business Plan - Resource


Business Plan

Year

1 - 1H

Year

1 - 2H

Year

1 - Total

Year

2 - 1H

Year

2 - 2H

Year

2 - Total

Year

3 - 1 H

Year

3 - 2H

Year

3 - Total

Market demand 11 700 000 14 300 000 26 000 000 11 934 000 14 586 000 26 520 000 12 292 020 15 023 580 27 315 600

Growth 2% 3%

Target Units 29 250 48 750 78 000 47 736 111 384 159 120 92 190 180 966 273 156

Market Share 0,25% 0,34% 0,30% 0,40% 0,76% 0,60% 0,75% 1,20% 1,00%

Average unit Price List 200 200 206 206 212 212

Discount 25% 25% 25% 25% 30% 30%

Net 150 150 154,5 154,5 148,5 148,5

Net Sales 4 387 500 7 312 500 11 700 000 7 375 212 17 208 828 24 584 040 13 692 634 26 878 134 40 570 768

Cost of Goods sold 3 071 250 5 118 750 8 190 000 5 347 029 12 476 400 17 823 429 10 269 476 20 158 600 30 428 076

COGS % 70% 70% 72,50% 72,50% 75% 75%

Margin 1 316 250 2 193 750 3 510 000 2 028 183 4 732 428 6 760 611 3 423 159 6 719 533 10 142 692

Margin % 30,0% 30,0% 30,0% 27,5% 27,5% 27,5% 25,0% 25,0% 25,0%

132

Business Plan - Sales composition

Business Plan

Year 1 - 1H Year 1 - 2H Year 1 - Total Year 2 - 1H Year 2 - 2H Year 2 - Total Year 3 - 1 H Year 3 - 2H Year 3 - Total

Market demand 11 700 000 14 300 000 26 000 000 11 934 000 14 586 000 26 520 000 12 292 020 15 023 580 27 315 600

Growth 2% 3%

Target Units 29 250 48 750 78 000 47 736 111 384 159 120 92 190 180 966 273 156

Market Share 0,25% 0,34% 0,30% 0,40% 0,76% 0,60% 0,75% 1,20% 1,00%


Discount 25% 25% 25% 25% 30% 30%

Net 150 150 154,5 154,5 148,5 148,5

Net Sales 4 387 500 7 312 500 11 700 000 7 375 212 17 208 828 24 584 040 13 692 634 26 878 134 40 570 768


COGS % 70% 70% 72,50% 72,50% 75% 75%

Margin 1 316 250 2 193 750 3 510 000 2 028 183 4 732 428 6 760 611 3 423 159 6 719 533 10 142 692

Margin % 30,0% 30,0% 30,0% 27,5% 27,5% 27,5% 25,0% 25,0% 25,0%

Customer outlets Potential 2500 2500 3000 3000 3500 3500

In-House-Share 5% 8% 10% 10% 12,5% 12,5%

Sales / Outlet 125 200 300 300 437,5 437,5

Number of outlets 234 244 239 159 371 265 211 414 312

ESC Bretagne Brest - Globalization and Corporate Strategies

Business Plan - Organization


Business Plan


Headcount

Managing Director 1 1 1 1 1 1

Sales manager 1 1 1 1

Salesmen 4 4 4 5 5 5

Outlets / Head 60 60 70 70 80 80

Finance & Admin. 1 1 2 2 3 3

Order Desk 2 2 1 2 2 3

Outlets / Head 120 150 150 150 160 160

Human Resource 0 0 1 1 1 2

Total Headcount 8 8 10 13 14 15

Average cost / Head(all included) 30 000 30 000 27 500 27 500 25 000 25 000

Total Payroll 1 413 000 1 383 750 2 796 750 1 670 345 2 108 568 3 778 913 2 066 880 2 213 352 4 280 232

Business Plan - Costs


Business Plan


Logistics Warehousing 100 000 100 000 200 000 100 000 200 000 300 000 200 000 300 000 500 000

# Warehouses 1 1 1 2 2 3

Delivery cost 142 594 237 656 380 250 239 694 430 221 669 915 342 316 470 367 812 683

Cost / NS% 3,25% 3,25% 3,25% 2,50% 2,50% 1,75%

Automotive 176 400 182 250 358 650 218 250 262 944 481 194 262 944 258 136 521 080

# Vehicles 5 5 6 7 7 7

Cost / vehicle 6000 6000 6000 6000 6000 6000

Travel 52 920 54 675 107 595 68 203 82 170 150 373 85 457 83 894 169 351

Cost per day 120 120 125 125 130 130

# days / head / month 15 15 15 15 15 15

Rent 15 000 15 000 30 000 15 000 15 000 30 000 22 500 22 500 45 000

Sales Promotion & Advertising 438 750 731 250 1 170 000 663 769 1 548 795 2 212 564 1 095 411 2 150 251 3 245 661

Advertising / NS % 5% 5% 4% 4% 3% 3%

Promotion / NS % 5% 5% 5% 5% 5% 5%

Office Supplies 1 000 1 000 2 000 2 000 2 000 4 000 3 000 3 000 6 000

Communication 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Depreciation 2 000 2 000 4 000 3 500 3 500 7 000 5 000 5 000 10 000

Legal & Tax 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Outside services 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Other expenses 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Total Opex 2 209 070 2 479 925 4 688 995 2 755 067 4 236 977 6 992 043 3 759 192 5 054 133 8 813 325

Business Plan - P&L Summary


Business Plan


Net Sales 4 387 500 7 312 500 11 700 000 7 375 212 17 208 828 24 584 040 13 692 634 26 878 134 40 570 768


COGS % 70% 70% 72,50% 72,50% 75% 75%

Margin 1 316 250 2 193 750 3 510 000 2 028 183 4 732 428 6 760 611 3 423 159 6 719 533 10 142 692

Margin % 30,0% 30,0% 30,0% 27,5% 27,5% 27,5% 25,0% 25,0% 25,0%

Total Payroll 1 413 000 1 383 750 2 796 750 1 670 345 2 108 568 3 778 913 2 066 880 2 213 352 4 280 232



Delivery cost 142 594 237 656 380 250 239 694 430 221 669 915 342 316 470 367 812 683

Cost / NS% 3,25% 3,25% 3,25% 2,50% 2,50% 1,75%

Automotive 176 400 182 250 358 650 218 250 262 944 481 194 262 944 258 136 521 080

Travel 52 920 54 675 107 595 68 203 82 170 150 373 85 457 83 894 169 351

Rent 15 000 15 000 30 000 15 000 15 000 30 000 22 500 22 500 45 000


Office Supplies 1 000 1 000 2 000 2 000 2 000 4 000 3 000 3 000 6 000

Communication 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Depreciation 2 000 2 000 4 000 3 500 3 500 7 000 5 000 5 000 10 000

Legal & Tax 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000


Other expenses 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Total Opex 2 209 070 2 479 925 4 688 995 2 755 067 4 236 977 6 992 043 3 759 192 5 054 133 8 813 325

NPBT -892 820 -286 175 -1 178 995 -726 883 495 451 -231 432 -336 033 1 665 400 1 329 367



Business Plan

Year 1 - Total Year 2 - Total Year 3 - Total

Net Sales 11 700 000 24 584 040 40 570 768

Cost of Goods sold 8 190 000 17 823 429 30 428 076

Margin 3 510 000 6 760 611 10 142 692

30,0% 27,5% 25,0%

Total Payroll 2 796 750 3 778 913 4 280 232

Logistics 200 000 300 000 500 000

380 250 669 915 812 683

Automotive 358 650 481 194 521 080

Travel 107 595 150 373 169 351

Rent 30 000 30 000 45 000

Sales Promotion & Advertising1 170 000 2 212 564 3 245 661

Office Supplies 2 000 4 000 6 000

Communication 5 000 7 000 9 000

Depreciation 4 000 7 000 10 000

Legal & Tax 5 000 7 000 9 000

Outside services 5 000 7 000 9 000

Other expenses 5 000 7 000 9 000

Total Opex 4 688 995 6 992 043 8 813 325

NPBT -1 178 995 -231 432 1 329 367

II. The techniques of International

Trade


1 - The techniques of International Trade –

Supporting organisms

Existing support organisms

Information and advice

Custom statistics

Norms, Patents and industrial property

Technical cooperation

Lobbying

Prospection

Foreign direct investment

UBI France

Information et marchés Librairie du commerce international

Projets et appels d’offres internationaux

Règlementations, formalités, contrats, brevets

Etudes sur mesure

Veilles personnalisées

Séminaires marchés

Contacts commerciaux

Missions économiques

Cap Export: les aides PME / TPE

SIDEX - Les aides financières destinées aux PME / TPE

Bénéficier du label France

Les groupements de PME à l’export




COFACE & COFACE Services

Assurance

Assurance crédit

Assurances prospection

Assurances risque de change

Autres garanties

Affacturage

Notation et information d’entreprises

Gestion des créances

Procédures publiques


COFACE


Coface has been privatized and is now a subsidiary of

NATIXIS Group.

The company is undergoing an important

reorganization, dividing the functions between two

separate entities:

COFACE will concentrate on insurance activities

COFACE service will offer company information and

evaluation services, debt recovering and solution data.



OSEO

Bénéficiaires

PME(*) constituées en société, créées depuis plus de trois ans, souhaitant se développer à l’export et à

l’international. Les entreprises peuvent déjà avoir une activité à l’étranger, ou y accéder pour la première fois.

Finalité

Financer les programmes d’investissements visant au développement de l’activité à l’exportation ou à l’implantation

à l’étranger.

Dépenses financées

Le Contrat de Développement International finance prioritairement :

les investissements immatériels : frais d’adaptation des produits et services aux marchés extérieurs, coûts de mise

aux normes, dépenses de prospection, participation aux foires et salons, recrutement et formation de l’équipe

commerciale export, dépenses de communication, frais d’échantillonnage, frais de transferts de matériels, …

Les investissements à faible valeur de gage : matériels spécifiques, moules, matériel informatique, …

L’augmentation du besoin en fonds de roulement générée par le projet de

développement : constitution des stocks pour l’export, …

Modalités d'intervention

Prêt :

sans garantie sur les actifs de l’entreprise, ni caution personnelle du dirigeant, de 40 000 à 400 000 euros, d’une

durée de six ans, avec un allégement du remboursement la première année.

Ce prêt accompagne un concours bancaire qui peut être garanti à 60 % par le Fonds de Garantie International

d’OSEO.

(*) Au sens de la définition européenne de la PME : entreprise de moins de 250 salariés déclarant soit un CA annuel

inférieur à 50 millions €, soit un total de bilan n'excédant pas 43 millions €. Elle doit être indépendante, c'est-à-dire

ne pas être détenue à plus de 25% par une ou plusieurs entités qui ne sont pas des PME.








Banks

Chamber of Commerce offer a variety of services


Expert advices

Training programs

Collective shows and exhibitions

Collective missions of prospection

2 - The techniques of International Trade - Specificities


TACE - Techniques Administratives du Commerce Extérieur

(Administrative Techniques for International Trade)

Customs

Logistic

International payments

Simple collection

Payment against documents

Credit against documents

standby letter of credit

Delivery against payment

factoring, forfaitage,

Guarantee and guarantor

Exchange risks

Exchange risk insurance

advance in foreign currency

Forward buying/selling foreign currency

Exchange option

2 - The techniques of International Trade - Specificities


International contracts

The context of international law

The contracts

Trade agent

Concession - Distributorship

Sale

Consumer goods

Capital goods

Services

Franchise

Joint Venture

Settlement of litigations: the International arbitration

3 - The techniques of International Trade - Prospection


Finance the pre-study and prospection effort

Trace the needs, understand the specific requirements of the targeted consumers

Adapt the product Norms

Marketing constraints

Define a commercial policy Plan and budget

Look for support and aides

Protect brands and patents

Get ready for the prospection trip

List importers

Look for suppliers

Prepare adapted commercial tools: Leaflets, Technical data sheets, Sales talk and arguments, Web site, General sales terms and conditions

Product costing at export destination and offered price

Set up corporate organization

Trade shows abroad

The export offer

Logistic organization and services

Selection of a distribution channel

Follow up and animation of the distribution channel


Risks and Solutions


International trade

Each step generates a specific additional risk

For every risk, exists a solution

Prospection

Risk: commercial failure

Solution: Assurance-Prospection COFACE

Principle: Refundable advance of 65% of the prospection expenses,

reimbursement of the advance at a later stage in case of success

Offer / signature of the contract

Risk: Abusive recourse to guarantees (Bid Bond, guarantee of

reimbursement of deposit

Solution: Assurance Risque de Fabrication COFACE

Principle: reimbursement at the cost value of a product partially

manufactured and not sold

Risk: increase of the cost price

Solution: Clause de révision


Risks and Solutions


Transport

Risk: transported goods

Solution: company insurance, COFACE, GATEX

Invoicing

Risk: debtor insolvency (unpaid debt)

Solutions:

Assurance-Crédit COFACE principle: reimbursement of the unpaid debt

Documentary credit principle: commitment to pay by the bank of the customer (sub-condition)

Factoring principle: global transfer of the customers account

Forfaitage principle: transfer of some selected customer debts

Bank guarantee

Securities

Guarantees

Documentary remittance


Risks and Solutions

Delivery

Risk: Abusive release of guarantee clauses (Performance Bond)

Solution: Guarantee by COFACE against such release

Payment

Risk: Exchange risk

Solutions:

Assurance Risque de change COFACE

principle: reimbursement of the exchange loss

Forward purchase / sale of foreign currency

principle: purchase / sale of currency at a rate fixed in advance

Advance in foreign currency

principle: loan in foreign currency pre-financing the export

Exchange option

principle: possibility to sell (put) or buy (call) foreign currency at a preset ratei

Risk: Politic, Catastrophic and Non-transfer

Solution: Insurance COFACE PCT

Final reception (end of the warranty period)

Risk: abusive recourse to guarantee (Retention Money Bond)

Solution: Guarantee COFACE against such abusive recourse to guarantee



Risks and Solutions


Political risk

see MOCI yearly "risques pays" in collaboration with COFACE


Risks and Solutions


Commercial risks

There is a risk to allow an agent or an importer to learn and get experience from us

and then to see him turning to another supplier

It is generally noticed that the it is likely that we will have to cut relationship with our

initial partner at a later stage in order to gain direct control over the marketing

process in the foreign country

Therefore the classical approach is to grant an exclusivity during a limited, but

relatively long period to get the partner full commitment but to be able to break

when necessary

Industrial risk

The risk is to be stolen our specific know-how or techniques, or permit our

customer to create the market and invest into the production tool when the

breakeven level is reached

Ex. Danone in China


Risks and Solutions


Financial risk

See COFACE

If there is an existing protocol (reserve for emerging markets), the

risk is carried by the bank in case of buyer credit

See solutions

Credit risk => insurance credit or “crédoc” (documentary credit)

Exchange risk => insurance, option, forward selling

Investment risk => guarantee of foreign investment

Risk and Control


Im portance of risk Com m ercial issue

Option Investm ent Econom ic &

political risk

Adaptation to

com m ercial

barriers

Stability of

relations

Availability

of

inform ation

Control

Indirect

exportation

Very Low Very Low Low Very Low Very Low Very Low

D irect exportation

By export dpt. Medium Medium Low Medium Medium Low

By representatives Low Low Low Low Medium Medium

By im porter Very Low Very Low Low Low Low Very Low

By sales office Medium Medium Medium Medium High Medium

Settlem ent without financial

engagem ent

License Low Medium High Low Low Very Low

Franchise Medium Low Medium Medium High Medium

Manufacturing

contract

Very Low High Medium Medium Medium Low

Managem ent

contract

Low Medium Medium Medium High Medium

Settlem ent with financial

engagem ent

Joint- venture Medium Medium High Medium High High

P lant abroad High High High High High High

Idea


The SME (small and medium enterprises) which aim at getting international and start

exporting enter into a relatively standardized process

Internationalization: export move and/or purchase from abroad

Mode: export department

Utilization of classical tools and process:

International exhibitions: look for partners

Support to export

Organisms: COFACE, OSEO, UBI France, etc.

Prospection, Market research, funding support and insurance procedures

Prospection trips, follow up, understanding of the market

Analysis of the environment (customs, protection, non tariff barriers, etc.)

Analysis of the market, selection of the target market

Building up the export offer, adaptation of the product, marketing constraints

Logistic

Analysis of strengths and weaknesses, risks and competition

Export project: business plan and return on investment

Matrix Investment - Risks / Control

Evolution of the relations with the initial partner

Idea

In essence, the export activity is the continuation of the domestic activity

It remains a matter of preparing a competitive offer to new potential customers

and generate the demand through proper marketing mix

It is the continuation of a growth process that is vital for any enterprise

However it raises many new challenges

The customers are new and do not share the same culture, creeds and needs

The partners are new

The environment (legal, economic, social, regulatory, practices, etc.) is new

The competitors are new

The distribution channels might be different

The purchasing pattern and customers expectations might be different

The using conditions for the product could be different, more severe

Etc.

The challenge is the unknown Risks vs. Control


III. The Impact of Export on the Corporate

Offer, Operations and Organization


The steps to internationalization


Selection

and study of

the market

Selection and

set up of the

exclusive

importer

Rupture of the contract

and set up of regional

distributors

(agents)

Organization

of a network of

distribution “direct”

Industrial

installation

Local

sub-contracting

Creation of the

local representation

office

Creation of the

commercial subsidiary

Organization of the

local logistic

Direct

deliveries

Elaboration of

the marketing

plan

Specific

line of

products

Pricing and

payment

policy

Distribution

policy

Advertising

Communication

Staffing

Commercial

action

Period of the export department Period of the international

matrix structure

Impact on corporate offer

The internationalization process: export from home base to foreign

markets

1. The impact of the internationalization process

a) A new environment

b) New competitors

c) New customers with possibly different expectations

2. Global call into question for the offer and the mix

a) Product mix

b) Customer mix

c) Channel mix

d) Communication mix

3. Call into question for the support functions

a) Supply chain

b) Back office


Impact on Organization, Supply Chain and Back Office

Organization

Setting up the export team

Running the export department - allocating resource between export and domestic business

Moving from a product line organization to a geographic organization

The matrix organization - Multicultural company

Supply Chain

Managing export flow

Managing local distribution in foreign countries

Managing global in & out flows

Back Office

International marketing department

International tax and legal affairs

International accounting rules

International Human Resource management


Organization


MD

Manufacturing

Director

Commercial

Director

Finance &

Administration

Director

Domestic Sales Export Sales

MD

Manufacturing

Director

Sales & Marketing

Finance &

Administration

Director

Supply Chain

Director

Product Line A Product Line B Product Line C

MD

Business Unit

America

Business Unit

Europe

Business Unit

Asia

R&D Manufacturing Supply Chain Sales & Marketing CFO

International Issues in Staffing

Implementing a strategy of international expansion takes a lot of

planning and can be very expensive.

Nearly 80% of midsize and larger companies send their

employees abroad and 45% plan to increase the number they

have on foreign assignment. A complete package for 1 executive

working in another country costs from $300,000 to $1 million

annually. Nevertheless. between 10% and 20% of all U.S.

managers sent abroad returned early because of job

dissatisfaction or difficulties in adjusting to a foreign country. Of

those who stayed for the duration of their assignment, nearly one-

third did not perform as well as expected. One-fourth of those

completing an assignment left their company within 1 year of

returning home—often leaving to join a competitor.

One common mistake is failing to educate the person about the

customs in other countries.



Out of their study of 750 U.S.. Japanese, and European companies.

Black and Gregersen found that the companies that do a good job of

managing foreign assignments follow 3 general practices.

When making international assignments, they focus on

transferring knowledge and developing global leadership.

They make foreign assignments to people whose technical skills

are matched or exceeded by their cross-cultural abilities.

They end foreign assignments with a deliberate repatriation

process with career guidance and jobs where the employees can

apply what they learned in their assignments.



Another approach to staffing the managerial positions of

multinational corporations is to use people with an "international"

orientation, regardless of their country of origin or host country

assignment. This is a widespread practice among European firms.

For example. Electrolux. a Swedish firm, had a French director in its

Singapore factory.

Using third-country "nationals" can allow for more opportunities for

promotion than does Unilever's policy of hiring local people, but it

can also result in more misunderstandings and conflicts with the

local employees and with the host country's government.



Some U.S. corporations take advantage of immigrants and their

children to staff key positions when negotiating entry into another

country and when selecting an executive to manage the company's

new foreign operations.

For example, when General Motors wanted to learn more about business

opportunities in China, it turned to Shirley Young, a Vice-President of

Marketing at GM. Born in Shanghai and fluent in Chinese language and

customs, Young was instrumental in helping GM negotiate a $1 billion

joint venture with Shanghai Automotive to build a Buick plant in China.

With other Chinese Americans, Young formed a committee to advise GM

on relations with China. Although just a part of a larger team of CM

employees working on the joint venture. Young coached GM employees

on Chinese customs and traditions.


International Considerations in Leading

When 1 successful company in 1 country merges with another

successful company in another country, the clash of corporate

cultures is compounded by the clash of national cultures. With the

value of cross-border mergers and acquisitions totaling $720 billion

in 1999, the management of cultures is becoming a key issue in

strategy implementation.

Multinational corporations must pay attention to the many

differences in cultural dimensions around the world and adjust

their management practices accordingly. Cultural differences can

easily go unrecognized by a headquarters staff that may interpret

these differences as personality defects, whether the people in the

subsidiaries are locals or expatriates.


Managing Internationnally –

Hofstede five cultural dimensions



In a study of 53 different national cultures, Hofstede found that each

nation's unique culture could be identified using 5 dimensions. He

found that national culture is so influential that it tends to overwhelm

even a strong corporate culture. In measuring the differences among

these dimensions of national culture from country to country, he was

able to explain why a certain management practice might be

successful in 1 nation, but fail in another.

Hofstede’s five cultural dimensions are

Power distance

Uncertainty avoidance

Individualism – Collectivism

Masculinity – Feminity

Time orientation

ESC Bretagne Brest - Globalization and Corporate Strategies 168 Source: Strategic Management and business policy. T. Wheelen; Doing business in Europe G. Suder


1. Power distance (PD) is the extent to which a society accepts an

unequal distribution of power in organizations. Malaysia and Mexico

scored highest, whereas Germany and Austria scored lowest. People

in those countries scoring high on this dimension tend to prefer

autocratic to more participative managers.

In large power-distance cultures, such as in Belgium, France, Poland and

Portugal, everybody has his or her place in a hierarchy. In the UK, Germany,

the Netherlands and Scandinavia, this idea of hierarchy is less important and

more transparent. These countries are said to be in cultures of small power

distance. Hierarchies are rather flat and the focus on collaboration of

different power levels is higher. Management decisions, HR policies and

business-government relations are influenced by the power-distance culture.

ESC Bretagne Brest - Globalization and Corporate Strategies 169 Source: Strategic Management and business policy. T. Wheelen; Doing business in Europe G. Suder


2. Uncertainty avoidance (UA) is the extent to which a society feels

threatened by uncertain and ambiguous situations. In cultures of

strong uncertainty avoidance, rules and formality provide for a feeling

of structure and security. In weak uncertainty avoidance cultures

people tend to be more innovative and entrepreneurial, in other

words more risk-taking.

Greece and Japan scored highest on disliking ambiguity, whereas the United

States and Singapore scored lowest. People in those nations scoring high on

this dimension tend to want career stability, formal rules, and clear-cut

measures of performance.

The countries of south and east Europe score high on uncertainty

avoidance, England and Scandinavia lower.


Source: Strategic Management and business policy. T. Wheelen; Doing business in Europe G. Suder


3. Individualism-collectivism (I-C) is the extent to which a society

values individual freedom and independence of action compared

with a tight social framework and loyalty to the group. In individualist

cultures people emphasize their own concerns, even those of their

own family, and want to differentiate themselves from others. In

collectivist cultures people belong to in-groups, which support them

in exchange for loyalty, and are preoccupied with a common goal

rather than an individual one. In collectivist cultures the need for

harmony may translate into higher degrees of conformity and

acceptance of challenges.

The United States and Canada scored highest on individualism, whereas

Mexico and Guatemala scored lowest. People in those nations scoring high

on individualism tend to value individual success through competition,

whereas people scoring low on individualism (thus high on collectivism) tend

to value group success through collective cooperation.

Northern Europeans are typically considered as tending towards

individualism, and the south of Europe as rather collectivist.




4. Masculinity-femininity (M-F) is the extent to which society is oriented toward money and things (which Hofstede labels masculine) or toward people (which Hofstede labels feminine). In masculine cultures, the dominant values are achievement and success. The dominant values in feminine cultures include care of others and quality of life, the focus on performance and achievement is less important while key for pride in masculine cultures. In addition, status is not interpreted equally in the two approaches.

Japan and Mexico scored highest on masculinity, whereas France and Sweden scored lowest (thus highest on femininity). People in those nations scoring high on masculinity tend to value clearly defined sex roles where men dominate and to emphasize performance and independence, whereas people scoring low on masculinity (and thus high on femininity) tend to value equality of the sexes where power is shared and to emphasize the quality of life and interdependence.

In Europe, a tendency towards masculinity can be found in the cultures of the UK and Italy. Example of feminine cultures are the Netherlands, and the Scandinavian countries.

Depending on the origin of your company, the origin of its executives or that of the majority of its employees, the Europeanized enterprise will tend to satisfy more than one or the other culture.




5. Long-term orientation (LT) is the extent to witch society is

oriented toward the long versus the short term. . A long-term time

orientation emphasizes the importance of hard work, education, and

persistence as well as the importance of thrift. Nations with a long-

term time orientation should value strategic planning and other

management techniques with a long-term payback.

Hong Kong and Japan scored highest on long-term orientation,

whereas Pakistan scored the lowest





0

10

20

30

40

50

60

70

80

90

100

Power Distance Individualism Masculinity Uncertainty Avoidance Long term orientation

5-dimensions Hofstede model

Canada China France Germany Great Britain Italy Japan Spain U.S.A.


The European cultures have increased its people’s common

economic, societal and even political links; this provides a feeling of

belonging to a shared cultural space that underlies social, economic

and political cohesion – and hence a prosperous breeding ground for

trans-nationality of business.

The feelings that define this cohesion, that is, the identity of the

European people, is based on the identification of what is shared

(“us”) and what is different (“the other”). Only this in- and out-group

identification (subconsciously often more than consciously) enables

the construction of a true European identity.


Source: Doing business in Europe G. Suder


When conducting strategic planning in a multinational corporation,

top management must be aware that the process will vary based

upon the national culture where a subsidiary is located.

For example, in 1 MNC, the French expect concepts and key

questions and answers. North American managers provide heavy

financial analysis. Germans give precise dates and financial

analysis. Information is usually late from Spanish and Moroccan

operations and quotas are typically inflated. It is up to management

to adapt to the differences.

Hofstede and Bond conclude: "Whether they like it or not, the

headquarters of multinationals are in the business of

multicultural management."


Source: Doing business in Europe G. Suder

IV.Conclusion

The Internationalization process




Trying a definition

Effort to increase the size of one’s market through the conquest of foreign

markets.







Organizational change aiming at better coordinating the activity in several

countries


Organization of an export department, of a foreign representative or franchised

distributor


Growth

The various methods for corporate expansion

1. Gaining market share through existing channels with existing products on current segment

Advertising effort

Hard selling effort

Promotional effort

2. Gaining market share through

New products

New segments of customers

New channels

3. Gaining new geographical markets (on another region or country) with

Existing products - adapted

Existing segments - reinterpreted

Existing channels or new channels importers, distributors, wholesalers, etc.



Some points in form of conclusion

The internationalization process is most frequently materialized in

small and medium-size firms as the effort to start exporting.

Progressively the firm will build up a structured approach to foreign

markets as a prominent way to grow and expand its accessible

markets.

The firm will first offer its existing products and will soon be

confronted with specific expectations from the new consumers.

It will progressively adapt its offer and develop a specific marketing

package to satisfy foreign markets

Along this process it will meet the necessity of adapting its

organization


Conclusion: business as usual but…

Entering the internationalization process is getting new customers,

assessing their specific needs, adapting our offer, presenting it

through a proper marketing mix.

It means mastering specific risks

It means ensuring the return on investment

But

It means adapting the corporate organization through a specific

process along a variable timeline


The next steps to globalization


Multi-nationalization


The multi-nationalization


We have seen what is the Internationalization process for firms:

What could be the multi-nationalization process?

In which way is it different from the Internationalization?

Brain storming

Multi-nationalization: becoming Trans National


Trying a definition

“In a simple way, although not without ambiguity, one may

consider as multinational any enterprise having at least one

production unit abroad; this unit will then be its subsidiary”.

The logic of production is prevailing.

A company may have local commercial representatives abroad,

but it will really become multinational only if it produces all or part

of its products outside its national boundaries” (origin).

Source: Jean-Louis Mucchielli (Points Économie)

In a next phase the company become multinational: it means that it

starts producing in a foreign market, would that be to feed to said

market with its products or to take chance of better production factors

to sell the products elsewhere, including in the home market.

In this phase the acquisition of knowledge and experience about the

foreign country is much deeper than in the internationalization phase.

At the same time the company will transfer a broader knowledge to

the production country.

The supply chain will become even more complex and the company

will tend to become organized by product line or by country of

operations.


At the multi-national stage, the company may grow very big and

operate production, logistic and selling activities in many countries.

However such a company will not be organized to be virtually

present on every geographical market.

Example of very large multinational company

Renault

Large company producing in many countries and selling a broad range

of products under three brands (Renault, Dacia and Samsung).


Multinational = Direct Investment

Definition

The economic characteristics allowing to establish that a capital

flow is a direct investment, are the following:

1) a notion of control or ability to influence the management of a

foreign enterprise,

2) a transfer of complex competencies (a technological unit),

and

3) a logic of production


Avantages compétitifs

Entrées sur le marché étranger

National production

and export

Production in the

receiving country

Licence or management

contract

International

Investment

Joint-Venture

partenership

Controlling share

or total control

Merger &

Acquisition

Creation of a greenfield

subsidiary

How to take benefit of foreign market


Tans National Companies

Types of establishment abroad


Source JL Mucchieli

Limited intervention

(Subsidiary)

Stage of the product located on the foreign market

Sales subsidiary

Assembly

Production of

components

Headquar

ters

Laboratory

R&D

Production

subsidiary

Joint-venture for

commercialization Alliance

Joint-venture for

production

OEM

Sub-contractor Delegated

to others

Partnership

(Joint-venture)

Foreign Agent

Franchising

License

agreement

Purchase of

patent

Commer-

cialization Production Conception Administration

TNC (Trans National Companies) = A new organization


Consequences on the organization

The multi-nationalization of the firm is part of a dynamic including

several stages, generating themselves an increased intensity of multi-

nationalization. This progression may be observed through the

evolution of the national and international organization of the firm.

The enterprise is a complex structure, multi-functional and multi-

products. Along the multi-nationalization process, it is this complex

structure that evolve and distort itself.

Keeping or acquiring these competitive advantages will come as

well from the performances of these activities as from the liaisons

(coordination and optimization) among those activities.


The reasons for multi-nationalization

The firms aims at gaining market shares at the expense of its competitors:

1. Cover the local demand (gain market potential)

2. Better adapt its product to the local demand

3. Reduce its costs by producing locally and then avoiding the transportation costs

4. Find cheaper production cost through cheaper labor (for local production or parts and sub-components to be used in homeland production)

5. Eliminate or reduce exchange risks

6. Try to increase barriers to entry by attempting to better controlling the market from inside

7. Turn around the import restrictions and quotas

8. Cover the domestic market demand from a cheaper production base outside


Mondialisation


Mondialisation

Trying a definition

Make the world the market of the firm

Give oneself the vocation to exploit the firm knowhow to all the

potential clients in the world

Operate at the level of the world

Concentrate on “Triadians”

Create a multi-national culture

Adapt its offer to the expectations of consumers in the various

countries of the world

Develop its infrastructure and its supply chain at the level of the whole

world

Move above than the stage of the export department

Complex organizational structures


At some point the company is organized to sell its products virtually

everywhere in the world. In this phase the company is usually a

multinational structure, although it is not always the case: some

companies have only one production site in their country of origin

and sell to all countries in the world.

The company considers that for its products the world is its potential

market.

It will be organized by direct subsidiaries or any kind of partnership to

distribute its products and service them in every country (even if it

may select only those countries where there is a significant market

for its products, it could extend sales to any new country where a

demand would appear).

Such company can be named “Mondiale” or “world company”.


The Triad


The existence of a worldwide market and the

rapid diffusion of technology are as many

elements, on the side of demand as well as on the

side of the offer, which drive large multi-national

firms to become global, that is to say, to have a

strategy simultaneously on the three main

markets composing the triad (Northern America,

Europe, Japan).

196

Globalization


Globalization


Trying a definition

Make the most of our specific competencies, fully, close to all possible clients.

Homogeneous geographic coverage

Covering most or all of the market segments

or, Creation of the “World Product”, common the all the planet

Deep valorization of the market: creation of value for the client, sales of services and products

Mobilization of the full scope of corporate resource on its core business (métier).

Major increase of the cost of research, development and introduction on the marketplace.

Maximum concentration of available resources.

Give up non essential activities

Visible strategy for the stock exchange operators

Oligopoly situation

The last stage of the internationalization process is the one of the

global company.

Global companies operate in global industries.

The main characteristic of a global company is that it does not only

sell its products to all countries of the world: it tends to cover in

every market all the segments accessible through its expertise,

technology or production base.

It focuses on one industry but tends to make full use of its

competencies in that industry to offer broad and deep product

lines likely to cover all the market segments.

Examples are: The car industry or the tire industry


Global marketing


Ted Levitt (quoted by Kotler & Dubois)

“The differences related to culture, national standards, to the

business structure are remains of the past… the powerful flow of the

technology drives the world to a converging community. Only the

global companies are promised to long term success by focusing on

what everybody wants, rather than on the details of what the people

think they want”

“A global competitor will always try and standardize its offer

everywhere; he will depart from standardization only after exhausting

every possibility to preserve it, and he will tend to come back to

standardization as soon as discrepancies would be reduced. He will

never suppose that the consumer knows his own desires. The global

competition rings the bell of the local dominations”.

Global Industry


A global industry is an industry in which the strategic positions of the competitors are

determined in relation with worldwide stakes

A global firm will thus try to capitalize on opportunities for research, production, logistics, and marketing at the scale of the planet

(Kotler & Dubois 10éme édition)

201

Types of competition


Pure

com petition

Monopolistic

com petition

Oligopoly Monopoly

Num ber of

econom ic

actors

unlim ited num erous Few Single

Product Hom ogeneous,

undifferentiated

D ifferentiated,

num erous, very

sim ilar substitutes

D ifferentiated or

undifferentiated

Few substitute or

none

Lim itation to

com petition

Lim ited Few lim itations Many Absence of

com petition

Im portance of

the price

com petition

Nil Very strong Com petition by

price is avoided

Nil

Im portance of

advertising

Nil Rather strong Very strong Nil

Exam ples Som e agricultural

products

Watches,

toothpaste, coffee

Cars, Airlines, car

rental

Public service

com panies

The impact on the organization

Global Strategy Strategy of “glocalization”

International allocation of

functions - tasks

Regional division of functions -

tasks

Quest for economies of scale on

world basis

Quest for economies of scale on

a regional basis

Importance of logistic

coordination

Regional concentration of the

production to limit logistic costs

Production for a unified world

market

Production adapted to one

market


Elements of difference between the strategies of globalization and

those of “glocalization”

Source: M. Daynac, C. Dupuy, Y. Pandero: L ’importance du facteur régional dans les stratégies de

global/localisation des groupes japonais implantés en Europe

Cité par JL Mucchielli, Multinationales et mondialisation


Geographic dimension: entering new markets

Market

2

Market

7

Market

3

Market

6

Market

4

Market

5

P

r

o

d

u

c

t

Product

line 1

Product

line 2

Product

line 3

Product

line 4

Product

line 5

Product

line 1

Product

line 3

Product

line 4

Product

line 1

Product

line 2

Product

line 5

Product

line 1

Product

line 3

Product

line 4

Product

line 5

Product

line 1

Product

line 2

Product

line 4

Product

line 1

Product

line 3

Product

line 5

Product

line 2

Product

line 4

Product

line 5

Product

line 1

Product

line 2

Product

line 3

Product

line 4

Product

portfolio Domestic

market

Product

line 2

The main characteristics of global companies are:

Global companies are taking chance – and – have accelerated the

international fragmentation of the value chain

The value chain of the industries and global companies is more and

more fragmented.

They take benefit of the Ricardo theory (“Theory of the comparative

advantages” published in 1817) according to which each country is

interested in specializing in the production of goods and services for

which it is most efficient.

By doing so, every country will benefit of the free-exchange as the total

value chain would optimized

Raw materials, parts and components are supplied from the

cheapest/most efficient source, almost disregarding the distance and

transportation costs, in order to be finally assembled at the best

possible cost/performance ratio



Global companies produce and sell in many locations a wide range

of products.

Decisions for geo-localization of production/sales are made to

optimize the total costs of the factors, instead of sub-optimizing

them.

They will combine independently, without much consideration for

their home country or any specific interest than profit and efficiency

maximization, the localization of the production of the various parts

and sub-components, the final assembly, the logistic flow through a

worldwide supply chain.

For example they may accept to pay higher transportation cost of duty

rates if it can be counterbalanced by lower manpower cost or stable raw

material supply.


Global companies manage very complex organizational

structures, combining geographical region and product line

management. They are frequently organized around a matrix

strategy with Business Units specialized by regions of the world and

having their complete facilities in terms of RD, production and

marketing, while sharing key resources with the other units.

They manage very complex supply chains worldwide, sourcing raw

materials, parts component or products that they will assemble,

combine and distribute worldwide as well. The coordination of such

complex structures and system is frequently what is generating a

competitive edge or to the opposite a major handicap for the global

company.


Global companies will always operate in a quest for maximum

standardization of the processes (management, production,

design, etc.) and products in order to best levy on their size to

reduce costs.

However they will be permanently looking after the best possible

compromise, depending on their industry and specific market,

between producing

(1) a world product (same for all markets),

(2) mass-customized products, produce in large volumes but

adapted to each country and/or segment specific requirements or

(3) individualized products specially crafted on order for each

individual customer (tailor-made luxury suit, luxury cars, etc.).



The World Product Standardized, Common

Mass produced

Ex. I phone / I Pad

The mass-customized Product What is invisible is standardized and mass

produced

What is visible is adapted

Ex. Automobile

The Individualized Product Methods and competencies are shared

The production tools are common

The product is tailor-made for each customer

Ex. BMW, a trade show?

Depending on the industry under consideration and the nature of the

product offered, the global company will move the cursor between

the world product (one product for all: ex. IPhone), the mass-

customized product (mass production of a product largely adapted

to each market segment: ex. Watches), and the individualized

product, tailored especially for one named consumer, produced on

order (luxury garment, luxury cars).

Modern production facilities allow this tailoring of the product while

retaining reasonable economies of scale.

Global companies should be able to exploit local innovations

whereas they are generated internally in the organization or traced

outside and acquired.


Global companies take benefit from their proximity with each

individual market provided by their extensive organizations and

physical presence in all key markets

Ex. Toyota having design centers in California, France, Japan, etc.

They tend to cover with their offer the maximum possible number

of segments reachable with their resources and technology. This

leads them to manage many several or brands to clearly identify

each product line for the consumers of each identified segment.

They usually control a significant market share worldwide and will

tend to homogenize their share in the various main consumption

areas. They have usually been striving in the recent years to capture

market share in emerging markets, out of the low growth Triad

countries.


They are always looking for the best possible balance between

centralized management, leading to homogeneity and consistent

strategies across the board, and decentralized management,

allowing faster reaction and adaptation to local needs. A frequent

approach is so-called glocalization: trying to make central everything

possible while leaving local what is necessary for efficiency and

satisfaction of local conditions and market requirements.

They manage their human resources in an optimized way across

cultures and background. They raise talents disregarding their

country of origin and pool resources in all their facilities. They are

able to recruit and retain the best talents, irrespective to their origin

and background

They able to manage efficiently multi-cultural work teams


Cost saving is achieved in several ways:

Global companies suffer from high structural and coordination costs that must

be compensated by the following ways

Sales to all markets in the world, expansion of customer base, increased volume as

well as maximum standardization will provide economies of scale

Take full benefit from fragmented value chain

Externalization of production whenever relevant

Invisible parts and components are made common to several product lines and to all

markets (car platform). They will deliver economies of range (or scope)

Production systems are made flexible: machinery, production flow optimization, lean

production systems, etc.

Production facilities specialized by product rather than by market (generating more

transportation but optimizing the product costs)

Fast progress on the learning curve thanks to their massive expenditures in process

and tooling development.

Cheaper funding thanks to their size, ability to borrow money in many countries (or

be listed on several stock exchange markets)


Critical Mass effect

Economies of scale

Spreading fixed costs related to

assets,

research,

Creation and development of brands

On a larger volume of products sold

Economies of range

Spreading of the cost for developing the production process and

related equipment used for the various products of the range

(ex. Car platform concept)

Learning curve

Capitalization on their knowledge and experience


Concept


Internationalisation Multinationalisation Mondialisation Globalisation

Exporting from

home country

Producing in one

foreign country

Organized to sell into

any country of the world

Cover all accessible

market segments

Global multi-cultural approach

215

Stage of the export

department

Adapting the offer

Acquiring and

delivering expertise

Conclusion and Summary


Globalization and Corporate Strategies

Globalization: causes and consequences


Globalization A. Six main causes to the globalization of the world

1. The development of the means of transportation and communication

2. Increase of the cost of research, development, industrialization and marketing

3. The changes in the offer

4. The changes in the demand

5. The exhaustion (or the absence) of natural resources

6. The liberalization of financial flows

B. Four main consequences of the globalization

1. The development of World trade

2. Cross border investments

3. Migration flows

4. Increased competition at every level

Reinforced by the global crisis of September 2008

But the worst is not certain


Closing the gap



Reduce absolute poverty and/or Reduce inequalities?


There is no longer a debate about the fact

that Globalization has contributed in

reducing massively the absolute poverty

and raising the living conditions of billions

of people above the poverty line (1,25

USD/day).

There is debate about the reduction of

inequalities: the globalization seems to be a

factor increasing the gap between the top

10th richest and bottom 10th poorest people.

The key challenge for the future is how to

improve the condition of the bottom (lost?)

billion people.

Globalization: how do the firms have to react


A. The value chain and corporate strategies I. Basic organizational and marketing concept to prepare the internationalize approach

B. The internationalization process: the steps to export I. The strategic steps

1) Diagnostic

2) Methodology for the study

3) Marketing Plan

4) Deployment

II. The techniques of International Trade

1) Supporting organisms

2) Specificities

3) Prospection

4) Risks and Solutions

III. The impact of Internationalization on corporate offer, operations and organizations

IV. Conclusion: business as usual, but

C. The next steps to Globalization I. Multi-nationalization

II. Mondialisation

III. Globalization

D. A continuous process - Different stages for companies according to

their size and global market share

Concept


There is a progressive development cycle for the firms


Multi-nationalization

Mondialisation

Globalization

The Trans National Companies (TNC) operate further downstream

than Small and Medium Size Companies, which generally remain at

the level of Internationalization (according to their size and relative

market share)

221



Trying a definition

Effort to increase the size of one’s market through the conquest of

foreign markets.







Organizational change aiming at better coordinating the activity in

several countries


Organization of an export department, of a foreign representative or

franchised distributor



In essence, the export activity is the continuation of the domestic

activity

It remains a matter of preparing a competitive offer to new potential customers and generate the

demand through proper marketing mix

It is the continuation of a growth process that is vital for any enterprise

However it raises many new challenges

The customers are new and do not share the same culture, creeds and needs

The partners are new

The environment (legal, economic, social, regulatory, practices, etc.) is new

The competitors are new

The distribution channels might be different

The purchasing pattern and customers expectations might be different

The using conditions for the product could be different, more severe

Etc.

The challenge is the unknown Risks vs. Control


The need for Growth compels international

development

The various methods for corporate expansion

1. Gaining market share through existing channels with existing products on current segment

Advertising effort

Hard selling effort

Promotional effort

2. Gaining market share through

New products

New segments of customers

New channels

3. Gaining new geographical markets (on another region or country) with

Existing products - adapted

Existing segments - reinterpreted

Existing channels or new channels importers, distributors, wholesalers, etc.


The steps to internationalization


Selection

and study of

the market

Selection and

set up of the

exclusive

importer

Rupture of the contract

and set up of regional

distributors

(agents)

Organization

of a network of

distribution “direct”

Industrial

installation

Local

sub-contracting

Creation of the

local representation

office

Creation of the

commercial subsidiary

Organization of the

local logistic

Direct

deliveries

Elaboration of

the marketing

plan

Specific

line of

products

Pricing and

payment

policy

Distribution

policy

Advertising

Communication

Staffing

Commercial

action

Period of the export department Period of the international

matrix structure



A high-level summary of the marketing plan

2. The challenge

Brief description of product to be marketed and associated goals, such as sales figures and strategic goals


Company analysis Goals

Focus

Culture

Strengths

Weaknesses

Market Share

Customer analysis Number

Type

Value drivers

Decision process

Concentration of customer base for particular products

ESC Bretagne Brest - Globalization and Corporate Strategies 226 Source: Adapted from quickmba




Competitor analysis

Market position

Strengths

Weaknesses

Market share

Collaborators - Partners

Subsidiaries

Joint ventures

Distributors

Etc.

Climate

PEST analysis

Political and legal environment

Economic environment

Social and cultural environment

Technological environment


See Competition analysis


SWOT analysis: a SWOT analysis of the business environment can be performed

by organizing the environmental factors as follows:

The firm’s internal attributes can be classed as strengths and weaknesses

The external environment presents opportunities and threats

4. Market segmentation


Percent of sales

What they want



How to reach them

Acceptable price bracket

Price sensitivity

Segment 2



Tracing our Strengths Tracing our Weaknesses

Tracing our

Opportunities

Make use our of

Strengths to take benefit

from Opportunities

Minimizing our

Weaknesses or Gaining

Competencies to take

benefit from

Opportunities

Tracing our

Treaths

Make use of our

Strengths to reduce the

Threats

Minimizing our

Weaknesses and reduce

Treaths by taking a

different course





Discuss why the strategy was selected

Present the marketing mix decisions (4 P’s)

Product: The product decisions should consider the product’s advantages and how they will be leveraged. Product decisions should include

Brand name

Quality

Scope of the product line

Warranty

Packaging

Price: Discuss pricing strategy, expected volumes and decisions for the following pricing variables

List price

Discounts

Bundling

Payment terms and financing options

Leasing options




Maker COGS


100

115

80

55

100

90

80

70

60

50

40

90

70

45

115

105

85

65

45

105

90

60

40



Maker COGS


100

115

80

55

100

90

80

70

60

50

40

90

70

45

115

105

85

65

45

105

90

60

40



5. Selected marketing strategy (continued)

Distribution (Place): decision variable include

Distribution channels, such as direct, retail, distributors & intermediaries

Motivating the channel Ex. Distributor margins

Criteria for evaluating distributors

Logistics, including transportation, warehousing and order fulfillment

Promotion

Advertising, including how much and which media

Public relations

Promotional programs

Budget. Determine break-even point for any additional spending

Projected results of the promotional program

6. Short & Long-term projections

The selected strategy’s immediate effects, expected long-term results and any special actions required to achieve them. This section may include forecasts of revenues and expenses as well as the results of a break-even analysis

Prepare the provisional Profit & Loss Account and determine the return on investment

7. Conclusion


The Business Plan is translated into numbers that

will allow to drive the deployment phase


IDRAC - Globalization and Corporate Strategies

Business Plan - Sales composition

Business Plan


Market demand 11 700 000 14 300 000 26 000 000 11 934 000 14 586 000 26 520 000 12 292 020 15 023 580 27 315 600

Growth 2% 3%

Target Units 29 250 48 750 78 000 47 736 111 384 159 120 92 190 180 966 273 156

Market Share 0,25% 0,34% 0,30% 0,40% 0,76% 0,60% 0,75% 1,20% 1,00%


Discount 25% 25% 25% 25% 30% 30%

Net 150 150 154,5 154,5 148,5 148,5

Net Sales 4 387 500 7 312 500 11 700 000 7 375 212 17 208 828 24 584 040 13 692 634 26 878 134 40 570 768


COGS % 70% 70% 72,50% 72,50% 75% 75%

Margin 1 316 250 2 193 750 3 510 000 2 028 183 4 732 428 6 760 611 3 423 159 6 719 533 10 142 692

Margin % 30,0% 30,0% 30,0% 27,5% 27,5% 27,5% 25,0% 25,0% 25,0%

Customer outlets Potential 2500 2500 3000 3000 3500 3500

In-House-Share 5% 8% 10% 10% 12,5% 12,5%

Sales / Outlet 125 200 300 300 437,5 437,5

Number of outlets 234 244 239 159 371 265 211 414 312


Business Plan - Organization

Business Plan


Headcount

Managing Director 1 1 1 1 1 1

Sales manager 1 1 1 1

Salesmen 4 4 4 5 5 5

Outlets / Head 60 60 70 70 80 80

Finance & Admin. 1 1 2 2 3 3

Order Desk 2 2 1 2 2 3

Outlets / Head 120 150 150 150 160 160

Human Resource 0 0 1 1 1 2

Total Headcount 8 8 10 13 14 15

Average cost / Head(all included) 30 000 30 000 27 500 27 500 25 000 25 000

Total Payroll 1 413 000 1 383 750 2 796 750 1 670 345 2 108 568 3 778 913 2 066 880 2 213 352 4 280 232


Business Plan - Costs

Business Plan




Delivery cost 142 594 237 656 380 250 239 694 430 221 669 915 342 316 470 367 812 683

Cost / NS% 3,25% 3,25% 3,25% 2,50% 2,50% 1,75%

Automotive 176 400 182 250 358 650 218 250 262 944 481 194 262 944 258 136 521 080

# Vehicles 5 5 6 7 7 7

Cost / vehicle 6000 6000 6000 6000 6000 6000

Travel 52 920 54 675 107 595 68 203 82 170 150 373 85 457 83 894 169 351

Cost per day 120 120 125 125 130 130

# days / head / month 15 15 15 15 15 15

Rent 15 000 15 000 30 000 15 000 15 000 30 000 22 500 22 500 45 000


Advertising / NS % 5% 5% 4% 4% 3% 3%

Promotion / NS % 5% 5% 5% 5% 5% 5%

Office Supplies 1 000 1 000 2 000 2 000 2 000 4 000 3 000 3 000 6 000

Communication 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Depreciation 2 000 2 000 4 000 3 500 3 500 7 000 5 000 5 000 10 000

Legal & Tax 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000


Other expenses 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Total Opex 2 209 070 2 479 925 4 688 995 2 755 067 4 236 977 6 992 043 3 759 192 5 054 133 8 813 325



Business Plan


Net Sales 4 387 500 7 312 500 11 700 000 7 375 212 17 208 828 24 584 040 13 692 634 26 878 134 40 570 768


COGS % 70% 70% 72,50% 72,50% 75% 75%

Margin 1 316 250 2 193 750 3 510 000 2 028 183 4 732 428 6 760 611 3 423 159 6 719 533 10 142 692

Margin % 30,0% 30,0% 30,0% 27,5% 27,5% 27,5% 25,0% 25,0% 25,0%

Total Payroll 1 413 000 1 383 750 2 796 750 1 670 345 2 108 568 3 778 913 2 066 880 2 213 352 4 280 232



Delivery cost 142 594 237 656 380 250 239 694 430 221 669 915 342 316 470 367 812 683

Cost / NS% 3,25% 3,25% 3,25% 2,50% 2,50% 1,75%

Automotive 176 400 182 250 358 650 218 250 262 944 481 194 262 944 258 136 521 080

Travel 52 920 54 675 107 595 68 203 82 170 150 373 85 457 83 894 169 351

Rent 15 000 15 000 30 000 15 000 15 000 30 000 22 500 22 500 45 000


Office Supplies 1 000 1 000 2 000 2 000 2 000 4 000 3 000 3 000 6 000

Communication 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Depreciation 2 000 2 000 4 000 3 500 3 500 7 000 5 000 5 000 10 000

Legal & Tax 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000


Other expenses 2 500 2 500 5 000 3 500 3 500 7 000 4 500 4 500 9 000

Total Opex 2 209 070 2 479 925 4 688 995 2 755 067 4 236 977 6 992 043 3 759 192 5 054 133 8 813 325

NPBT -892 820 -286 175 -1 178 995 -726 883 495 451 -231 432 -336 033 1 665 400 1 329 367

Multi-nationalization: becoming Trans National


Trying a definition

“In a simple way, although not without ambiguity, one may consider

as multinational any enterprise having at least one production unit

abroad; this unit will then be its subsidiary”.

The logic of production is prevailing.

A company may have local commercial representatives abroad, but it

will really become multinational only if it produces all or part of its

products outside its national boundaries” (origin).

Source: Jean-Louis Mucchielli (Points Économie)

TNC (Trans National Companies) = A new organization

Consequences on the organization

The multi-nationalization of the firm is part of a dynamic including

several stages, generating themselves an increased intensity of

multi-nationalization. This progression may be observed through

the evolution of the national and international organization of the

firm.

The enterprise is a complex structure, multi-functional and multi-

products. Along the multi-nationalization process, it is this

complex structure that evolve and distort itself.

Keeping or acquiring these competitive advantages will come as

well from the performances of these activities as from the

liaisons (coordination and optimization) among those activities.



The reasons for multi-nationalization

The firms aims at gaining market shares at the expense of its competitors:

1. Cover the local demand (gain market potential)

2. Better adapt its product to the local demand

3. Reduce its costs by producing locally and then avoiding the transportation costs

4. Find cheaper production cost through cheaper labor (for local production or parts and sub-components to be used in homeland production)

5. Eliminate or reduce exchange risks

6. Try to increase barriers to entry by attempting to better controlling the market from inside

7. Turn around the import restrictions and quotas


Mondialisation


Trying a definition

Make the world the market of the firm

Give oneself the vocation to exploit the firm knowhow to all the

potential clients in the world

Operate at the level of the world

Concentrate on “Triadians”

Create a multi-national culture

Adapt its offer to the expectations of consumers in the various

countries of the world

Develop its infrastructure and its supply chain at the level of the

whole world

Move above than the stage of the export department

Complex organizational structures

The Triad


The existence of a worldwide market and the

rapid diffusion of technology are as many

elements, on the side of demand as well as on the

side of the offer, which drive large multi-national

firms to become global, that is to say, to have a

strategy simultaneously on the three main

markets composing the triad (Northern America,

Europe, Japan).

Ohmae

Globalization

Trying a definition

Make the most of our specific competencies, fully, close to all

possible clients. Homogeneous geographic coverage

Covering most or all of the market segments

or, Creation of the “World Product”, common the all the planet

Deep valorization of the market: creation of value for the client, sales of

services and products

Mobilization of the full scope of corporate resource on its core

business (métier). Major increase of the cost of research, development and introduction on

the marketplace.

Maximum concentration of available resources.

Give up non essential activities

Visible strategy for the stock exchange operators

Oligopoly situation


Global marketing

Ted Levitt (quoted by Kotler & Dubois)

“The differences related to culture, national standards, to the business

structure are remains of the past… the powerful flow of the technology drives

the world to a converging community. Only the global companies are

promised to long term success by focusing on what everybody wants, rather

than on the details of what the people think they want”

“A global competitor will always try and standardize its offer everywhere; he

will depart from standardization only after exhausting every possibility to

preserve it, and he will tend to come back to standardization as soon as

discrepancies would be reduced. He will never suppose that the consumer

knows his own desires. The global competition rings the bell of the local

dominations”.


Global Industry


A global industry is an industry in which the strategic positions of the competitors are determined in relation

with worldwide stakes

A global firm will thus try to capitalize on opportunities for research, production, logistics, and marketing at the scale of the planet

(Kotler & Dubois 10éme édition)


Global companies are taking chance – and – have accelerated the

international fragmentation of the value chain

The value chain of the industries and global companies is more and

more fragmented.

They take benefit of the Ricardo (“Theory of the comparative advantages”

published in 1817) theory according to which each country is interested in

specializing in the production of goods and services for which it is most

efficient.

By doing so, every country will benefit of the free-exchange as the total

value chain would optimized

Raw materials, parts and components are supplied from the

cheapest/most efficient source, almost disregarding the distance and

transportation costs, in order to be finally assembled at the best

possible cost/performance ratio



Global companies produce and sell in many locations a wide range

of products.

Decisions for geo-localization of production/sales are made to

optimize the total costs of the factors, instead of sub-optimizing

them.

They will combine independently, without much consideration for

their home country or any specific interest than profit and efficiency

maximization, the localization of the production of the various parts

and sub-components, the final assembly, the logistic flow through a

worldwide supply chain.

For example they may accept to pay higher transportation cost of duty

rates if it can be counterbalanced by lower manpower cost or stable raw

material supply.


Global companies manage very complex organizational

structures, combining geographical region and product line

management. They are frequently organized around a matrix

strategy with Business Units specialized by regions of the world and

having their complete facilities in terms of RD, production and

marketing, while sharing key resources with the other units.

They manage very complex supply chains worldwide, sourcing raw

materials, parts component or products that they will assemble,

combine and distribute worldwide as well. The coordination of such

complex structures and system is frequently what is generating a

competitive edge or to the opposite a major handicap for the global

company.


Global companies will always operate in a quest for maximum

standardization of the processes (management, production,

design, etc.) and products in order to best levy on their size to

reduce costs.

However they will be permanently looking after the best possible

compromise, depending on their industry and specific market,

between producing

(1) a world product (same for all markets),

(2) mass-customized products, produce in large volumes but

adapted to each country and/or segment specific requirements or

(3) individualized products specially crafted on order for each

individual customer (tailor-made luxury suit, luxury cars, etc.).


Global companies take benefit from their proximity with each

individual market provided by their extensive organizations and

physical presence in all key markets

Ex. Toyota having design centers in California, France, Japan, etc.

They tend to cover with their offer the maximum possible number

of segments reachable with their resources and technology. This

leads them to manage many several or brands to clearly identify

each product line for the consumers of each identified segment.

They usually control a significant market share worldwide and will

tend to homogenize their share in the various main consumption

areas. They have usually been striving in the recent years to capture

market share in emerging markets, out of the low growth Triad

countries.


They are always looking for the best possible balance between

centralized management, leading to homogeneity and consistent

strategies across the board, and decentralized management,

allowing faster reaction and adaptation to local needs. A frequent

approach is so-called glocalization: trying to make central everything

possible while leaving local what is necessary for efficiency and

satisfaction of local conditions and market requirements.

They manage their human resources in an optimized way across

cultures and background. They raise talents disregarding their

country of origin and pool resources in all their facilities.


Cost saving is achieved in several ways:

Global companies suffer from high structural and coordination costs that must

be compensated by the following ways

Sales to all markets in the world, expansion of customer base, increased volume as

well as maximum standardization will provide economies of scale

Take full benefit from fragmented value chain

Externalization of production whenever relevant

Invisible parts and components are made common to several product lines and to all

markets (car platform). They will deliver economies of range (or scope)

Production systems are made flexible: machinery, production flow optimization, lean

production systems, etc.

Production facilities specialized by product rather than by market (generating more

transportation but optimizing the product costs)

Fast progress on the learning curve thanks to their massive expenditures in process

and tooling development.

Cheaper funding thanks to their size, ability to borrow money in many countries (or

be listed on several stock exchange markets)


Concept


Trans-National Companies: They aim at producing close to their

main markets (opened and developed in the previous stage of the

cycle) and to diversify their procurement in a flexible way at the stage

of Multi-Nationalization (subcontracting, licensing, franchising,

partnership, joint venture, direct investment)

At the stage of Mondialisation, they proceed mainly by partial or total

acquisition of a local competitor which allows them to save

considerable time in the learning of the market and the development

of local suitable means and infrastructure

At the stage of Globalization, they pool on their worldwide resources

and competencies to cover the full scope of the market and make

each individual customer their customer

247

Concept



Learning of the market

Adaptation to the market

Modification of the local

representation

Direct local presence

Reorganization

of the company

Gain control

Global multi-cultural

approach

248

Concept



Exporting from

home country

Producing in one

foreign country

Organized to sell into

any country of the world

Cover all accessible

market segments

Global multi-cultural approach

249

Stage of the export

department

Adapting the offer

Acquiring and

delivering expertise

Bibliographie


Rapports de l’Institut Montaigne:

Mondialisation: réconcilier la France avec la compétitivité

Rendre l’Europe compétitive

Rapport du Conseil Economique et Social

Processus de Lisbonne : contribution du CES à la préparation du sommet du printemps 2008

Commission Attali

Commission pour la libération de la croissance française

Rapports du Conseil d’Analyse Economique

Evolution récente du commerce extérieur français Patrick Artus, Lionel Fontagné

Mondialisation: les atouts de la France - Philippe Aghion, Patrick Artus, autres

Hubert Védrine: Rapport sur la France et la mondialisation

Rapport de la CIA: comment sera le monde en 2020?

Patrick Artus: Banques centrales et Crises financières

Nicole Gnesotto, Giovanni Grevi: Le monde en 2005

Jean-Louis Mucchielli: Multinationales et mondialisation. Points Économie

Kotler & Dubois 10éme édition

Le Figaro

Les Echos

250

Bibliographie


La mondialisation – Emergences et Fragmentations: Pierre-Noël Giraud ; Ed.

Sciences Humaines

La mondialisation – Genèse, acteurs et enjeux : Laurent Carroué ; Ed. Bréal

Géopolitique du monde contemporain – Etats, continents, puissances : Pierre

Gentelle ; Ed. Nathan

Strategor Politique générale de l'entreprise. Collectif des professeurs d'HEC -

Département Stratégie et Politique d'entreprise HEC ; Ed. Dunod

Globalisation – Le pire est àvenir : Patrick Arthus / Marie-Paule Virard; La

Découverte

La mondialisation n’est pas coupable – Vertus et limites du libre-échange : Paul

Krugman; La Découverte

Vainqueurs et vaincus – Lendemains de crise – François Heisbourg

La mondialisation – Génèse, acteurs et enjeux: Laurent Carroué, Didier Collet,

Claude Ruiz; ECS

L’ordre mondial: Philippe Moreau Defarges; Armand Colin

Géopolitique du monde contemporain; Nathan

251


Author: Bruno Frachon

Mail: [email protected]

Tel: 06 17 09 68 81

mailto:[email protected]

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