Week 7 international strategy

3BM020: Organisational Strategy and Decision Making Lecture: Week Learning outcomes  Assess the internationalisation potential of different markets, sensitive to variations over time  Identify sources of competitive advantage in international strategy  Distinguish between four main types of international strategy  Rank markets for entry or expansion, taking into account attractiveness, cultural, and other forms of distance and competitor retaliation threats In the news –This time last year In the news Oct - 2016 Apple iPhone sales fall, but beat estimates Apple has reported its third quarter in a row of falling iPhone sales and revenue, but sales beat analyst expectations The tech giant sold 45.51 million iPhones in the three months to 24 September, beating an average estimate of 44.8 million The company also forecast higherthan-expected holiday season revenue of between $76bn and $78bn But revenue in the fourth quarter fell 9% to $46.85bn That meant annual revenue fell for the first time since 2001, highlighting a slowdown in the smartphone market as well as intensifying competition, particularly from In the news Oct - 2016 Apple raises computer prices in UK One analyst said consumers should expect further price increases "Apple has to recalibrate prices after significant currency fluctuations, and since the EU referendum, UK prices are out of sync with the dollar," said Patrick O'Brien, analyst at the Verdict Retail consultancy "Apple has taken the hit up until now While price increases won't look good to the consumer, it's difficult to blame Apple "Once you strip out UK sales tax (VAT) and the currency conversion, the new UK prices could still be viewed as fair." Stimuli to Internationalise In business activities, a variety of stimuli push and pull firms along the international path The major motivations for firms to go international have been differentiated into proactive and reactive Proactive motivations represent stimuli to attempt strategic change Reactive motivations influence firms that respond to environmental shifts by changing their activities over time Proactive firms internationalise because they want to…reactive firms internationalise because they have to Strategy Framework Internationalisation drivers Sources of competitive advantage International strategy Market selection Mode of entry 8-7 Drivers of Internationalisation Market drivers • • • Similar customer needs Global customers Transferable marketing Government drivers • • • Cost drivers Trade policies Technical standards Host government policies International strategies • • • Scale economies Country-specific differences Favourable logistics Competitive drivers • • Interdependence between countries Competitors’ global strategies 8-8 Why firms internationalise        PROACTIVE Motivators Profit Unique products Technological advantages Exclusive information Managerial urge Tax Benefit Economies of scale • • • • • • REACTIVE Motivators Competitive pressures Overproduction Declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports Change agents in the internationalisation process Internal Enlightened management New management Significant internal event External Foreign demand Competition Domestic distributors Service firms Business associations Governmental activities Export intermediaries Export management companies and Trading companies Porter’s Diamond Firm strategy, structure and rivalry Factor conditions Demand conditions Related and supporting industries 8-12 Global sourcing Global sourcing refers to purchasing services and components from the most appropriate suppliers around the world regardless of their location Locational Advantages of Global Sourcing Cost advantages Unique capabilities National characteristics 8-14 Global R&D Network 8-15 Market Characteristics and the PESTEL Framework Political Economic Social Legal 8-16 The CAGE Framework Cultural distance Geographic distance Administrative and political distance Economic/ wealth distance 8-17 Exporting Advantages  No need for operational facilities in host country  Economies of scale  Internet facilitates exporting opportunities Disadvantages  Lost location advantages  Dependence on export intermediaries  Exposure to trade barriers  Transportation costs 8-18 Joint Ventures and Alliances Advantages  Shared investment risk  Complementary resources  May be required for market entry Disadvantages  Difficult to find good partner  Relationship management  Loss of competitive advantage  Difficult to integrate and coordinate 8-19 Licensing Advantages  Contractual source of income  Limited economic and financial exposure Disadvantages  Difficult to identify good partner  Loss of competitive advantage  Limited benefits from host nation 8-20 Foreign Direct Investment Advantages  Full control  Integration and coordination possible  Rapid market entry through acquisitions  Greenfield investments Disadvantages  Substantial investment and commitment  Acquisitions may create integration/ coordination issues  Greenfield investments are time consuming and unpredictable 8-21 Foreign market entry, risk, resources & control High Amount of resources required Risk Resourc es Foreign Direct Investment Strategic alliance Exporting Low Low High Control Summary (1)    Internationalisation potential in any particular market is determined by four drivers: market, cost, government, and competitors’ strategies Sources of advantage can come from global sourcing through the international value network and national sources of advantage The main types of international strategy vary according to extent of coordination and geographical configuration: simple export, complex export, multidomestic, and global 8-24 Summary (2) Market selection for international entry should be based on attractiveness, multidimensional measures of distance and expectations of competitor retaliation  Modes of entry into new markets include export, licensing, joint ventures, and foreign direct investment  8-25 Key questions: Global, Local, or Regional? Which products and services are becoming more ‘global’ over time?  Which products and services are becoming less ‘global’?  Does this understanding impact upon your organisation?  Which national sources of competitive advantage, if any, might your organisation draw from its national base?  8-26 For the seminars  Be prepared to discuss your report outline  Be prepared to contribute to the work of other students  Consider how the formative feedback provided will support improvements to your report ... firms internationalise because they want to…reactive firms internationalise because they have to Strategy Framework Internationalisation drivers Sources of competitive advantage International strategy. .. as fair." Stimuli to Internationalise In business activities, a variety of stimuli push and pull firms along the international path The major motivations for firms to go international have been... outcomes  Assess the internationalisation potential of different markets, sensitive to variations over time  Identify sources of competitive advantage in international strategy  Distinguish